Betenbaugh, Inc., manufactures and sells two products: Product E4 and Product L8. 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 $29.00 per DLH. The direct materials cost per unit is $223.90 for Product E4 and $122.30 for Product L8. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: The unit product cost of Product E4 under activity-based costing is closest to:

Question

Betenbaugh, Inc., manufactures and sells two products: Product E4 and Product L8. 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 $29.00 per DLH. The direct materials cost per unit is $223.90 for Product E4 and $122.30 for Product L8. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  The unit product cost of Product E4 under activity-based costing is closest to:

Quizplus · Accepted Answer

We need to allocate the overhead costs to each product using the activity-based costing system:

Activity rate for Activity 1 = $30,000 ÷ 5,000 = $6 per machine-hour
Activity rate for Activity 2 = $90,000 ÷ 2,000 = $45 per setup-hour
Activity rate for Activity 3 = $60,000 ÷ 500 = $120 per design-hour

Product E4 requires 6 machine-hours, 1 setup-hour, and 3 design-hours per unit:

Activity 1 cost = $6 × 6 = $36
Activity 2 cost = $45 × 1 = $45
Activity 3 cost = $120 × 3 = $360

Total overhead cost per unit of Product E4 = $36 + $45 + $360 = $441
Total manufacturing cost per unit of Product E4 = $223.90 (direct materials) + $29.00 (direct labor) + $441.00 (overhead) = $693.90

Therefore, the unit product cost of Product E4 under activity-based costing is $693.90.