Annika company uses activity-based costing. the company has two products: a and b. the annual production and sales of product a is 4,000 units and of product b is 1,000 units. there are three activity cost pools, with estimated total cost and expected activity as follows:

expected activity

activity cost pool estimated costs product a product b total

activity 1 $18,000 700 300 1,000activity 2$24,000500 100 600activity 3 $60,0008004001,200

the cost per unit of product a under activty-based costing is closest to:

answer
a. $20.40
b. $18.15
c. $17.00
d. $10.00

b. $18.15

Explanation:

Toatal money spent on product A is:

Activity 1: 700/1000*18000 = $12600

Activity 2: 500/600*24000 = $20000

Activity 3: 800/1200*60000 = $40000

Total money spent on product A = $12600 + $20000 + $40000

                                                       = $72600

Total units of product A formed = 4000

Cost per product = $72600/4000 =  $18.15

Therefore, The cost per unit of Product A under activty-based costing is closest to  $18.15.

AnswerThe answer is $18.15

Explanation

Activity cost of project A / Total Activity × Total Cost

700/ 1000 × 18,000

= $12,600

500/600 × 24,000

= $20,000

800/1,200 × 60,000

= $40,000

Total cost = $12,600 + $20,000 + $40,000 = $ 72,600

To calculate cost per unit of product A, we divide the total cost by the annual production and sales of product A

= 72,600/4,000

= 18.15

Therefore the cost per unit of product A = $18.15

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