Forrer Company has two products: A and B. The annual production and sales level
ID: 2482294 • Letter: F
Question
Forrer Company has two products: A and B. The annual production and sales level of Product A is 18,188 units. The annual production and sales level of Product B is 31,652. The company uses activity-based costing and has prepared the following analysis showing the estimated total cost and expected activity for each of its three activity cost pools.
Activity Cost Pool
Estimated
Cost
Expected Activity
Product A
Product B
Activity 1
$ 80,000
200
800
Activity 2
360,000
600
5,400
Activity 3
58,400
1,000
500
Part (a)
What is the total overhead cost allocated to Product B under activity-based costing?
Part (b)
What is the overhead cost per unit of Product B under activity-based costing?
Part (c)
Compute the profit margin for Product B using activity-based costing.
Activity Cost Pool
Estimated
Cost
Expected Activity
Product A
Product B
Activity 1
$ 80,000
200
800
Activity 2
360,000
600
5,400
Activity 3
58,400
1,000
500
Explanation / Answer
Product B
Activity Estimated cost (A+B) Activity usage A Activity usage B Activity cost B
1. 80,000 200 800 80,000/1000*800=64000
2. 360,000 600 5400 360,000/6000*5400=324000
3. 58,400 1000 500 58,400/1500*500=19466.67
Number of units =31,652
a.Total overhead cost allocated to product B
64000+324000+19466.67=407466.7
b.Overhead cost per unit of B
407466.7/31652=12.87