Olmo, Inc., manufactures and sells two products: Product K0 and Product H9. The annual production and sales of Product of K0 is 700 units and of Product H9 is 700 units. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Activity Cost Pools Activity Measures Estimated Overhead Cost Expected Activity
Product K0 Product H9 Total
Labor-related DLHs $549,108 5,600 7,000 12,600
Production orders orders 52,119 500 400 900
Order size MHs 834,716 4,200 4,400 8,600
$1,435,943

The overhead applied to each unit of Product K0 under activity-based costing is closest :_________

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facundobuzzetti facundobuzzetti · Answer 1 · 2021-05-17T02:29:09+02:00

Answer:

Cost per unit= 680,655 / 700= $972.36

Explanation:

First, we need to calculate the activities rates:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Labor-related= 549,108 / 12,600= $43.58 per direct labor hour

Production= 52,119 / 900= $57.91 per order

Order size= 834,716 / 8,600= $97.06 per machine-hour

Now, we can allocate costs to Product K0:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Product K0 Product H9 Total

Labor-related DLHs $549,108 5,600 7,000 12,600

Production orders orders 52,119 500 400 900

Order size MHs 834,716 4,200 4,400 8,600

Labor-related= 43.58 *5,600= $244,048

Production= 57.91 / 500= $28,955

Order size= 97.06*4,200= $407,652

Total allocated costs= $680,655

Finally, the cost per unit:

Cost per unit= 680,655 / 700= $972.36