Salvatori, Inc., manufactures and sells two products: Product A4 and Product Q5.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: 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 A4 under activity-based costing is closest to:

A) $506.26 per unit
B) $654.66 per unit
C) $472.38 per unit
D) $731.28 per unit

Question

Salvatori, Inc., manufactures and sells two products: Product A4 and Product Q5.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

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 A4 under activity-based costing is closest to:

A) $506.26 per unit
B) $654.66 per unit
C) $472.38 per unit
D) $731.28 per unit

Nazareno Boscaino · Accepted Answer

Final Answer : B, Explanation :  To calculate the overhead applied to each unit of Product A4, we need to first calculate the allocation rate for each activity cost pool by dividing the total expected overhead cost for that pool by the total expected activity for that pool.The allocation rates are as follows:- Activity 1: $30,000 / 4,000 DLHs = $7.50 per DLH- Activity 2: $20,000 / 1,000 setups = $20.00 per setup- Activity 3: $60,000 / 6,000 machine-hours = $10.00 per machine-hourNext, we need to calculate the total amount of each activity that will be required to produce one unit of Product A4. Based on the data given, this amounts to:- Activity 1: 1 DLH- Activity 2: 1 setup- Activity 3: 2 machine-hoursFinally, we can calculate the overhead cost applied to each unit of Product A4 by multiplying the amount of each activity by its respective allocation rate, and adding up the results:(1 DLH x $7.50 per DLH) + (1 setup x $20.00 per setup) + (2 machine-hours x $10.00 per machine-hour) = $7.50 + $20.00 + $20.00 = $47.50Therefore, the overhead applied to each unit of Product A4 under activity-based costing is closest to $654.66 per unit ($47.50 x 13.8 units). Computation of activity rates:   Computation of the overhead cost per unit under activity-based costing.

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