Olide, Inc., manufactures and sells two products: Product B9 and Product C8. The annual production and sales of Product of B9 is 300 units and of Product C8 is 100 units. 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 B9 under activity-based costing is closest to:
A)$860.56 per unit
B)$468.50 per unit
C)$648.24 per unit
D)$914.38 per unit

Question

Olide, Inc., manufactures and sells two products: Product B9 and Product C8. The annual production and sales of Product of B9 is 300 units and of Product C8 is 100 units. 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 B9 under activity-based costing is closest to:
A)$860.56 per unit 
B)$468.50 per unit 
C)$648.24 per unit 
D)$914.38 per unit

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate for each activity cost pool. 
Activity 1: $27,900 ÷ 300 = $93 per unit of B9 
Activity 2: $33,480 ÷ 100 = $334.80 per unit of C8 
Activity 3: $12,960 ÷ 10,000 machine hours = $1.296 per machine hour

Next, we need to allocate the overhead costs to each product using the activity rates. 
Product B9: 
Activity 1: 300 units × $93 per unit = $27,900 
Activity 2: 0 units × $334.80 per unit = $0 
Activity 3: 1,000 machine hours × $1.296 per machine hour = $1,296

Total overhead cost allocated to B9 = $29,196

Overhead per unit of B9 = Total overhead cost ÷ Number of units of B9 
Overhead per unit of B9 = $29,196 ÷ 300 units 
Overhead per unit of B9 = $97.32 per unit

Adding the overhead cost to the direct cost we get, 
Product B9: $397 + $97.32 = $494.32 per unit

Therefore, the closest answer is C) $648.24 per unit.