Mcleese, Inc., manufactures and sells two products: Product I6 and Product L1. 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 $26.60 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 L1 under activity-based costing is closest to:
A)$445.22 per unit
B)$423.73 per unit
C)$337.30 per unit
D)$269.41 per unit

Question

Mcleese, Inc., manufactures and sells two products: Product I6 and Product L1. 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 $26.60 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 L1 under activity-based costing is closest to:
A)$445.22 per unit 
B)$423.73 per unit 
C)$337.30 per unit 
D)$269.41 per unit

Quizplus · Accepted Answer

To calculate the overhead cost per unit of Product L1 using activity-based costing, we need to follow these steps:

1. Calculate the overhead cost per activity measure:
- Activity 1: $39,000 / 2,000 = $19.50 per setup hour
- Activity 2: $91,200 / 1,800 = $50.67 per machine hour
- Activity 3: $28,800 / 1,200 = $24.00 per inspection hour

2. Calculate the overhead cost per unit for each product:
- Product I6: (1 setup hour x $19.50) + (3 machine hours x $50.67) + (2 inspection hours x $24.00) = $263.01
- Product L1: (2 setup hours x $19.50) + (5 machine hours x $50.67) + (1 inspection hour x $24.00) = $423.73

Therefore, the overhead applied to each unit of Product L1 under activity-based costing is closest to $423.73 per unit. Option B is the correct answer.