A Company Has Two Products: Big and Little Annual Production and Sales Level of Big Product Is 62,525

question 6

Essay

A company has two products: Big and Little.It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools:
$$\begin{array}{r}{ \text { Budgeted Activity } } \quad\quad\quad\quad\\\begin{array} { | l | l | r | r | } \hline \begin{array} { l } \text { Activity Cost } \\\text { Pool }\end{array} & \begin{array} { l } \text { Budgeted } \\\text { Cost }\end{array} & \text { Big Product } & \text { Little Product } \\\hline \text { Activity 1 } & { \$ 7 , 0 0 0 } & 1,200 & 2,800 \\\hline \text { Activity 2 } & { \$ 91 , 0 0 0 } & 5,250 & 1,750 \\\hline \text { Activity 3 } & \$ 88,000 & \mathbf { 3 } , 200 & 4,800 \\\hline\end{array}\end{array}$$ Annual production and sales level of big product is 62,525 units, and the annual production and sales level of little product is 251,900 units.
a.Compute the approximate overhead cost per unit of big product under activity-based costing.
b.Compute the approximate overhead cost per unit of little product under activity-based costing.

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Definitions:

Common Shares

Equity investments that represent ownership interests in a corporation, with rights to share in the company's profits through dividends and/or capital appreciation.

Quick Ratio

A measure of a company's short-term liquidity, calculating its ability to meet short-term obligations with its most liquid assets.

Financial Statements

Compiled financial data reports that provide an overview of a company's financial condition, including balance sheets, income statements, and cash flow statements.

Common Shares

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.