Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:
$$\begin{array} { l l r r r }
\text { Activity } & \text { Cost Driver } & \text { Amount } & { \text { M } } & { \text { XY } } \
\text { Production setups } & \text { Number of setups } &8 2 , 0 0 0 &8 & 12 \
\text { Material hardling } & \text { Number of parts } & 48,000 & 56 & 24 \
\text { Packaging costs } & \text { Number of urits } & 130,000 & 80,000 & 50,000 \
& &\$ 2 6 0 , 0 0 0 & &
\end{array}$$
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What is the total overhead per unit allocated to Product M using activity-based costing (ABC)?
A) $2.60.
B) $2.27.
C) $2.00.
D) $1.83.

Question

Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:
$$\begin{array} { l l r r r } 
\text { Activity } & \text { Cost Driver } & \text { Amount } & { \text { M } } & { \text { XY } } \
\text { Production setups } & \text { Number of setups } &8 2 , 0 0 0 &8  & 12 \
\text { Material hardling } & \text { Number of parts } & 48,000 & 56 & 24 \
\text { Packaging costs } & \text { Number of urits } & 130,000 & 80,000 & 50,000 \
& &\$ 2 6 0 , 0 0 0 & &
\end{array}$$
-
What is the total overhead per unit allocated to Product M using activity-based costing (ABC)?
A) $2.60.
B) $2.27.
C) $2.00.
D) $1.83.

Quizplus · Accepted Answer

The total overhead per unit allocated to Product M using activity-based costing (ABC) is $1.83. This is calculated by dividing the total overhead cost of $260,000 by the total number of units produced, which is 140,000 (80,000 + 50,000). The resulting overhead cost per unit is then multiplied by the number of units of Product M produced, which is 80,000, to arrive at the total overhead cost allocated to Product M of $146,400. Dividing this amount by the number of units of Product M produced, which is 80,000, results in an overhead cost per unit of $1.83.

Allure Company Manufactures and Distributes Two Products, M and XY