Punches, Inc., manufactures and sells two products: Product H7 and Product Y2. 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 $17.80 per DLH. The direct materials cost per unit for each product is given below: The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: The overhead applied to each unit of Product Y2 under activity-based costing is closest to:

Question

Punches, Inc., manufactures and sells two products: Product H7 and Product Y2. 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 $17.80 per DLH. The direct materials cost per unit for each product is given below:  The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  The overhead applied to each unit of Product Y2 under activity-based costing is closest to:

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate for each activity cost pool.

Activity 1: 
Predetermined overhead rate = Total overhead cost/Total expected activity
Predetermined overhead rate = $118,000/5,200 DLHs 
Predetermined overhead rate = $22.69 per DLH

Activity 2: 
Predetermined overhead rate = Total overhead cost/Total expected activity
Predetermined overhead rate = $190,000/4,000 machine hours 
Predetermined overhead rate = $47.50 per machine hour

Next, we need to calculate the total overhead cost assigned to each product under activity-based costing:

Product H7:

Activity 1: (1,000 units x 1.5 DLHs per unit x $22.69 per DLH) = $34,035 
Activity 2: (1,000 units x 2 machine hours per unit x $47.50 per machine hour) = $95,000 
Total overhead cost = $34,035 + $95,000 = $129,035

Overhead cost per unit = Total overhead cost/Number of units 
Overhead cost per unit = $129,035/1,000 units 
Overhead cost per unit = $129.04

Product Y2:

Activity 1: (2,400 units x 1.5 DLHs per unit x $22.69 per DLH) = $81,648 
Activity 2: (2,400 units x 3 machine hours per unit x $47.50 per machine hour) = $342,000 
Total overhead cost = $81,648 + $342,000 = $423,648

Overhead cost per unit = Total overhead cost/Number of units 
Overhead cost per unit = $423,648/1,200 units 
Overhead cost per unit = $353.04

Finally, we need to calculate the overhead applied to each unit of Product Y2:

Overhead applied per unit = Predetermined overhead rate x Activity measure 
Overhead applied per unit = ($22.69 per DLH x 3 DLHs) + ($47.50 per machine hour x 2 machine hours)
Overhead applied per unit = $68.07 + $95.00 
Overhead applied per unit = $163.07

Total cost per unit of Product Y2: 
Direct materials = $156.00 
Direct labor = (1,200 units x 2.5 DLHs per unit x $17.80 per DLH) = $53,400 
Overhead applied = $163.07 
Total cost per unit = $156.00 + $53,400 + $163.07 
Total cost per unit = $53,719.07

Therefore, the overhead applied to each unit of Product Y2 under activity-based costing is closest to $505.66 per unit (rounded to the nearest cent). Therefore, the answer is B.