Question

A company has two products: standard and deluxe. The company expects to produce 36,375 standard units and 62,240 deluxe units. It uses activity-based costing and has prepared the following analysis showing budgeted cost and cost driver activity for each of its three activity cost pools.

Budgeted Activity of

Cost Driver

Activity Cost Pool Budgeted Cost Standard Deluxe

Activity 1 …………………… \(93,000 2,500 5,250

Activity 2 …………………… \)92,000 4,500 5,500

Activity 3 …………………… $87,000 3,000 2,800

Required

1. Compute overhead rates for each of the three activities.

2. What is the expected overhead cost per unit for the standard units?

3. What is the expected overhead cost per unit for the deluxe units?

Short answer

Answer

Overhead cost perunit

For Standard Product: $3.2

For Deluxe Product: $2.5

Step-by-step solution

Calculation of overhead rates

$$\begin{gathered} \mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{R}\mathit{a}\mathit{t}\mathit{e}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{1}\mathbf{=}\frac{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{B}\mathbf{u}\mathbf{d}\mathbf{g}\mathbf{e}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{C}\mathbf{o}\mathbf{s}\mathbf{t}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{B}\mathbf{u}\mathbf{d}\mathbf{g}\mathbf{e}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{A}\mathbf{c}\mathbf{t}\mathbf{i}\mathbf{v}\mathbf{i}\mathbf{c}\mathbf{t}\mathbf{y}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{93}\mathbf{,}\mathbf{000}}{\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{+}\mathbf{5}\mathbf{,}\mathbf{250}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{12} \end{gathered}$$

role="math" localid="1654757431566" $$\begin{gathered} \mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{R}\mathit{a}\mathit{t}\mathit{e}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{2}\mathbf{=}\frac{\mathbf{Total}\mathbf{}\mathbf{Budgeted}\mathbf{}\mathbf{Cost}}{\mathbf{Total}\mathbf{}\mathbf{Budgeted}\mathbf{}\mathbf{Activicty}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{92}\mathbf{,}\mathbf{000}}{\mathbf{4}\mathbf{,}\mathbf{500}\mathbf{+}\mathbf{5}\mathbf{,}\mathbf{500}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{9}\mathbf{.}\mathbf{2} \end{gathered}$$

$$\begin{gathered} \mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{R}\mathit{a}\mathit{t}\mathit{e}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{3}\mathbf{=}\frac{\mathbf{Total}\mathbf{}\mathbf{Budgeted}\mathbf{}\mathbf{Cost}}{\mathbf{Total}\mathbf{}\mathbf{Budgeted}\mathbf{}\mathbf{Activicty}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{87}\mathbf{,}\mathbf{000}}{\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{2}\mathbf{,}\mathbf{800}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{15} \end{gathered}$$

Overhead cost per unit of standard units

$$\begin{gathered} \mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{S}\mathit{t}\mathit{a}\mathit{n}\mathit{d}\mathit{a}\mathit{r}\mathit{d}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{}\mathbf{=}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{1}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{+}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{2}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathbf{+}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{3}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{12}\mathbf{\times }\mathbf{2}\mathbf{,}\mathbf{500}}{\mathbf{36}\mathbf{,}\mathbf{375}}\mathbf{+}\frac{\mathbf{\$}\mathbf{9}\mathbf{.}\mathbf{2}\mathbf{\times }\mathbf{4}\mathbf{,}\mathbf{500}}{\mathbf{36}\mathbf{,}\mathbf{375}}\mathbf{+}\frac{\mathbf{\$}\mathbf{15}\mathbf{\times }\mathbf{3}\mathbf{,}\mathbf{000}}{\mathbf{36}\mathbf{,}\mathbf{375}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{.}\mathbf{2} \end{gathered}$$

Overhead cost per unit of deluxe units

$$\begin{gathered} \mathit{O}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{D}\mathit{e}\mathit{l}\mathit{u}\mathit{x}\mathit{e}\mathbf{}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathbf{=}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{1}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{+}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{2}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{+}\mathbf{}\mathit{A}\mathit{c}\mathit{t}\mathit{i}\mathit{v}\mathit{i}\mathit{t}\mathit{y}\mathbf{}\mathbf{3}\mathbf{}\mathit{C}\mathit{o}\mathit{s}\mathit{t} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{12}\mathbf{\times }\mathbf{5}\mathbf{,}\mathbf{250}}{\mathbf{62}\mathbf{,}\mathbf{240}}\mathbf{+}\frac{\mathbf{\$}\mathbf{9}\mathbf{.}\mathbf{2}\mathbf{\times }\mathbf{5}\mathbf{,}\mathbf{500}}{\mathbf{62}\mathbf{,}\mathbf{240}}\mathbf{+}\frac{\mathbf{\$}\mathbf{15}\mathbf{\times }\mathbf{2}\mathbf{,}\mathbf{800}}{\mathbf{62}\mathbf{,}\mathbf{240}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{5} \end{gathered}$$