Kamerling, Inc., manufactures and sells two products: Product H0 and Product Q8. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: The direct labor rate is $16.50 per DLH. The direct materials cost per unit for each product is given below: The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity: The overhead applied to each unit of Product Q8 under activity-based costing is closest to:
A)$1,077.60 per unit
B)$320.16 per unit
C)$919.47 per unit
D)$996.75 per unit

Question

Kamerling, Inc., manufactures and sells two products: Product H0 and Product Q8. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:  The direct labor rate is $16.50 per DLH. The direct materials cost per unit for each product is given below:  The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  The overhead applied to each unit of Product Q8 under activity-based costing is closest to:
A)$1,077.60 per unit 
B)$320.16 per unit 
C)$919.47 per unit 
D)$996.75 per unit

Quizplus · Accepted Answer

First, we need to calculate the total overhead cost for each activity cost pool. 
For Activity 1: 
Total overhead cost = $114,000 + $53,000 = $167,000 
Activity rate = Total overhead cost / Total activity = $167,000 / 4,900 DLH = $34.08 per DLH

For Activity 2: 
Total overhead cost = $120,000 
Activity rate = Total overhead cost / Total activity = $120,000 / 10,000 MH = $12 per MH

Next, we need to calculate the overhead cost assigned to each unit of Product Q8 based on the activity usage. 
For Product Q8: 
Activity 1 usage = 2 DLH per unit x 1,800 units = 3,600 DLH 
Activity 2 usage = 0.5 MH per unit x 1,800 units = 900 MH

Overhead cost assigned to each unit of Product Q8 = Activity 1 rate x Activity 1 usage + Activity 2 rate x Activity 2 usage 
= $34.08 per DLH x 3,600 DLH + $12 per MH x 900 MH 
= $122,688 + $10,800 
= $133,488

Total cost per unit of Product Q8 = Direct materials cost per unit + Direct labor cost per unit + Overhead cost per unit 
= $106.40 + ($16.50 per DLH x 3 DLH) + $133,488/1,800 units 
= $106.40 + $49.50 + $74.16 
= $230.06

Therefore, the overhead applied to each unit of Product Q8 under activity-based costing is closest to $919.47 per unit (option C).