Reference no: EM131765130

Computing Product Costs Using Activity-Based Costing: Petrov Company identified the following activities, estimated costs for each activity, and identified cost drivers for each activity for this coming year. (These are the first three steps of the activity-based costing model).

Activity	Cost Driver	Estimated Annual Overhead Costs	Estimated Annual Cost Driver Activity
Production setup	Number of production runs	$ 60,000	100 production runs
Materials handling	Yards of material purchased	140,000	10,000 yards purchased
Quality control	Number of inspections	80,000	800 inspections
Total		$280,000

 The company produces two products, MX1 and MX2. Information about these products of the month of March follows:

	MX1	MX2
Direct materials cost per unit	$20	$30
Direct labor costs per unit	$15	$45
Overhead cost per unit	?	?
Product cost per unit	?	?
Units produced	1,000 units	700 units

 Actual cost driver activity levels for the month of March are as follows:

	MX1	MX2
Number of production runs	3	6
Yards of materials purchased	550	230
Number of inspections	40	10

Required:

a. Using the estimates for the year, compute the predetermined overhead rate for each activity (this is step 4 of the activity-based costing process).

b. Using the activity rates calculated in requirement a and the actual cost driver activity levels shown for March, allocate overhead to the three products for the month of March (this is step 5 of the activity-based costing process).