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

question 147

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 B2 under activity-based costing?

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

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Definitions:

Positive NPV

An indication that an investment is expected to generate earnings greater than the costs, with a Net Present Value above zero, suggesting it's a profitable venture.

Projected Cash Flow

An estimate of the amount of money expected to flow in and out of a business over a future period, considering both income and expenses.

NPV

Net Present Value; a calculation used to determine the value of an investment by considering the present value of its expected future cash flows minus the initial investment cost.

Contribution Margin

The amount by which a product's sales price exceeds its total variable costs, indicating how much contribution the product makes towards fixed costs and profits.