Jasmine Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 10,000 units and of Product B is 4,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:$\begin{array}{lrr}
&\text { Estimated}& \text {Expected Activity }\
\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\
\text {Activity 1 } &£ 25,000&150 &100 &250\
\
\text { Activity 2. } &£ 65,000& 800 & 200 &1,000\
\
\text { Activity 3 } &£ 90,000& 1,000 &2,000 &3,000\
\end{array}$

The cost per unit of Product A under activity-based costing is closest to

A)£6.00.
B)£9.70.
C)£1.50.
D)£3.00.

Question

Jasmine Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 10,000 units and of Product B is 4,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:$\begin{array}{lrr}
&\text { Estimated}& \text {Expected Activity }\
\text { Activity CostPool }&\text { Cost }& \text {ProductA}&\text { Product B}&\text { Total }\
 \text {Activity 1  } &£ 25,000&150 &100 &250\
\
 \text { Activity 2. } &£ 65,000& 800 & 200 &1,000\
\
 \text { Activity 3 } &£ 90,000& 1,000 &2,000 &3,000\
\end{array}$

The cost per unit of Product A under activity-based costing is closest to

A)£6.00.
B)£9.70.
C)£1.50.
D)£3.00.

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate for each activity:

Activity 1: £60,000/15,000 machine hours = £4 per machine hour
Activity 2: £150,000/30,000 material moves = £5 per material move
Activity 3: £90,000/9,000 customer orders = £10 per customer order

Next, we need to allocate the overhead costs to each product:

Product A: 
Activity 1: 2,500 machine hours x £4 = £10,000
Activity 2: 7,000 material moves x £5 = £35,000
Activity 3: 400 customer orders x £10 = £4,000
Total overhead cost = £49,000
Overhead cost per unit = (£49,000/10,000 units) = £4.90

Product B:
Activity 1: 1,500 machine hours x £4 = £6,000
Activity 2: 3,000 material moves x £5 = £15,000
Activity 3: 200 customer orders x £10 = £2,000
Total overhead cost = £23,000
Overhead cost per unit = (£23,000/4,000 units) = £5.75

Therefore, the cost per unit of Product A under activity-based costing is:
Direct materials cost + direct labor cost + overhead cost per unit
= (£30 + £10 + £4.90) = £44.90

Therefore, the closest answer is B) £9.70, as the overhead cost per unit of Product A is £4.90.

Jasmine Company Uses Activity-Based Costing The Cost Per Unit of Product a Under Activity-Based Costing