A Company Has Two Products: A1 and B2 Annual Production and Sales Level of Product A1 Is 8,480

question 155

Multiple Choice

A company has two products: A1 and B2.It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools: $$\begin{array} { | l | l | r | r | } \hline & &{ \text { Budgeted Activity } } \\\hline \begin{array} { l } \text { Activity Cost } \\\text { Pool }\end{array} & \begin{array} { l } \text { Budgeted } \\\text { Cost }\end{array} & \text { Product A1 } & \text { Product B2 } \\\hline \text { Activity 1 } & \$ 48,000 & 1,200 & 4,800 \\\hline \text { Activity 2 } & \mathbf { \$ 3 , 0 0 0 } & \mathbf { 2 , 2 4 0 } & 4,760 \\\hline \text { Activity 3 } & \mathbf { \$ 8 0 , 0 0 0 } & 7,200 & \mathbf { 8 0 0 } \\\hline\end{array}$$ Annual production and sales level of Product A1 is 8,480 units, and the annual production and sales level of Product B2 is 22,310 units.What is the approximate overhead cost per unit of Product A1 under activity-based costing?

• A)$8.00
• B)$9.00
• C)$10.00
• D)$12.00
• E)$4.00

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Definitions:

Merit

Merit refers to the quality of being particularly good or worthy, especially so as to deserve praise or reward.

Productivity

The measure of how efficiently goods and services are produced, often expressed as the ratio of outputs to inputs.

Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain at a constant.

Average Total Cost (ATC)

ATC refers to the per-unit cost of production, calculated by dividing the total costs by the quantity of output produced.