Reference no: EM132537490

ABC Inc. produces a single product and manufactured 20,000 units and sold 10,000 units last year. ABC had a practical production capacity of 20,000 units per year.

The company budgeted the following overhead costs for the year:

Indirect Factory Wages:$140,000

Factory Utilities:$ 50,000

Factory Depreciation:$ 10,000

Direct manufacturing costs per unit are $100. The company uses an activity-based costing system which compiles costs into 3 cost pools, machining, milling and assembly. The costs allocated to these activity cost pools break down as follows:

Usage:

Cost:                                         Machining             Milling             Assembly

Indirect Factory Wages:             50%                  30%              20%

Factory Utilities:                         40%                  40%             20%

Factory Depreciation:                  10%                   90%                 0%

The following cost drivers are used for each of the following activity cost pools:

Machining: Machine Hours
Milling: Milling Hours
Assembly: Direct Labour Hours.

Practical and expected capacity for each of the cost pools are shown below:

Machining: 45,500 Machine Hours.
Milling: 71,000 Milling Hours.
Assembly: 38,000 Direct Labour Hours.

Actual Usage was as follows:

Machining: 40,000 Machine Hours.
Milling: 80,000 Milling Hours.
Assembly: 15,000 Direct Labour Hours.

Each unit requires a budgeted 2 Machine Hours, 1 Milling Hour and 4 Direct Labour Hours.

• ABC's policy is to charge $84 per unit.

Question 1: ABC's cost per unit using traditional costing was:

Option a) 15

Option b) 63

Option c) 58

Option d) 108