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8 A company makes two products using the same type of materials and skilled workers. The
following information is available:
Product A Product B
Budgeted volume (units) 1,000 2,000
Material per unit ($) 10 20
Labour per unit ($) 5 20
Fixed costs relating to material handling amount to $100,000. The cost driver for these
costs is the volume of material purchased.
General fixed costs, absorbed on the basis of labour hours, amount to $180,000.
Using activity-based costing, what is the total fixed overhead amount to be absorbed into
each unit of product B (to the nearest whole $)?
A $113
B $120
C $40
D $105
THIS IS the qn no.8 of kaplan rk. Here it is said that COST DRIVER OF MATERIAL HANDLING COST IS THE VOLUME OF MATERIALS PURCHASED.then why it is not divided by 3000? Please clarify my doubtI do not have the Kaplan kit – only the BPP kit.
However, since both products use the same material, and since the material cost per unit for B is two times that for A, it must be that B is using twice as much material per unit as A.
Therefore you should divided the $100,000 by (1,000 + (2 x 2,000)) = $20.
Therefore the amount to A is $20 and the amount to B is 2 x $20 = $40 per unit.
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