A company manufactures and sells two products: Product A1 and Product C4. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours
Product A1 500 2.0 1,000
Product C4 200 1.0 200
Total direct labor-hours 1,200

The direct labor rate is $27.40 per DLH. The direct materials cost per unit is $281 for Product A1 and $267 for Product C4. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Estimated Expected
Activity Cost Pools Activity Measures Overhead Cost Product C1 Product M2 Total
Labor-related DLHs $558,452 7,200 7,700 14,900
Production orders Orders 75,240 500 600 1,100
General factory MHs 886,410 4,400 4,600 9,000
$1,520,102

The total cost per unit of Product C4 under activity-based costing is closest to:

Unitary cost= $4,207.85

Explanation:

Giving the following information:

Product C4:

Production= 200 units

Direct labor hours per unit= 1

Total DLH= 200

The direct labor rate is $27.40 per DLH.

The direct materials cost per unit is $267

Activity Cost Pools -  Overhead Cost - Product C4 -  Total

Labor-related DLHs $558,452 - 7,700 - 14,900

Production orders Orders $75,240 - 600 - 1,100

General factory MHs $886,410 - 4,600 - 9,000

First, we need to calculate the predetermined overhead rate for each activity:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Labor-related= 558,452/14,900= $37.48 per DLH

Production orders= 75,240/1,100= $68.4 per order

General factory= 886,410/9,000= $98.49 per machine hour

Now, we can allocate overhead to C4 as a whole:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Labor-related= 37.48*7,700= $288,596

Production orders= 68.4*600= $41,040

General factory= 98.49*4,600= $453,054

Total= $782,690

Finally, the total cost and cost per unit:

Total cost= 200*267 + 200*27.4 + 782,690

Total cost= $841,570

Unitary cost= 841,570/200= $4,207.85

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