Amber Company had the following information: $\begin{array}{lrr}
\text { Activity Driver } & \text { Unit Variable Cost } & \text { Level of Activity Drive } \
\text { Units sold } & \$ 30&-- \
\text { Setups } & 1,500 &50\
\text { Engineering hours } & 50&1,200\\
\text { Other data: }\
\text { Total fixed costs (traditional) } & \$ 500,000 \
\text { Total fixed costs (Activity-based costing) } & 200,000 \
\text { Unit selling price } & 50
\end{array}$
How many units need to be sold to produce a before-tax profit of $100,000 using activity-based costing (ABC)?

Question

Quizplus · Accepted Answer

The correct answer is A.To calculate the number of units needed to be sold to produce a before-tax profit of $100,000 using activity-based costing (ABC), we can use the following formula:Units needed = (Fixed costs + Target profit) / (Unit selling price - Unit variable cost)Plugging in the given values, we get:Units needed = (200,000 + 100,000) / (50 - 30)= 300,000 / 20= 15,000 unitsHowever, this calculation does not take into account the activity-based costing (ABC) information. To adjust for this, we need to multiply the unit variable cost by the level of activity driver for each activity.For units sold, the unit variable cost is $30 and the level of activity driver is not given. Therefore, we cannot adjust for this activity.For setups, the unit variable cost is $1,500 and the level of activity driver is 50. Therefore, the adjusted unit variable cost for setups is $1,500 * 50 = $75,000.For engineering hours, the unit variable cost is $50 and the level of activity driver is 1,200. Therefore, the adjusted unit variable cost for engineering hours is $50 * 1,200 = $60,000.The total adjusted unit variable cost is $75,000 + $60,000 = $135,000.Using this adjusted unit variable cost, we can recalculate the number of units needed:Units needed = (Fixed costs + Target profit) / (Unit selling price - Adjusted unit variable cost)= (200,000 + 100,000) / (50 - 135,000)= 300,000 / -85,000= -3.53 unitsThis result is negative, which means that the company cannot produce a before-tax profit of $100,000 using activity-based costing (ABC) with the given information.

Amber Company Had the Following Information How Many Units Need to Be Sold to Produce a }