Calculate the production cost per unit for X and Y

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Reference no: EM133102718

Question - Accessorize make and sell two products called X and Y. An activity-based costing system has been implemented to replace the traditional absorption costing system.

The annual estimated production activity cost pools and cost driver activity levels for all output are as follows:

Activity Cost Pool ($) 


Activity Level 

Purchasing materials 

$160,000

4,000 purchase orders 

Storing materials           

$170,000

3400 issue notes 

Setting up machinery 

$100,000

100 set ups 

Running machinery cost 

$250,000

25000 machine hours 

Total production overhead $750000

An analysis of actual annual production usage based on activity cost pool for two products types are as follows:


X

Y

Units produced

4,000 units

2000 units

Purchase orders

800

1400

Stores issue notes

250

700

Setups

140

250

Machine hours

10000

5000

Direct materials

$35000

$15000

Direct labor

$200000

$30000

Required -

1. Calculate the production cost per unit for X and Y using the machine hour overhead absorption rate under the traditional system.

2. Calculate the activity rates.

3. Calculate the production cost per unit for X and Y using the activity-based costing system.

4. Comment on the costing of both the products under absorption (traditional) costing and activity-based costing methods based on your calculations.

Reference no: EM133102718

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