Activity Based Costing

For product A, there are 80,000/100 = 800 batches produced. At 3 set ups per batch, it means there will be 2,400 set-ups for product A. If you do the same for products B and C you should get the total number of set-ups to be 22,400. So the cost per set-up is 150,000 / 22,400. For product A the total cost is therefore: 2,400 set-ups x 150,000/22,400. So for product A, the cost per unit is: (2,400 x 150,000/22,400) / 80,000 = $0.2009 (In the same way, you should be able to calculate the cost per unit for B at about $0.54 and for C at about $1.61)

Thank you ever so much John, you're a great help. Jefzen2610

You are welcome :-)

Please don't simply tell me to answer a past exam question! Presumably you already have an answer in whatever book you found the question. If you say which part of the answer you do not understand then I will do my best to help.

If the question is given in '000s then usually the answer is required in the same way. However it really depends on what is asked for in the question.

You are welcome, Lynn :-)

Whichever way the overheads are dealt with (whether it be traditional absorption or activity based) it is only overheads we are looking at, and different ways will result in different overheads per unit. However the material and labour costs are not affected at all. Since the labour costs are $6 and $9 per unit, they will remain at that whichever way we deal with the overheads. Working more or less machine hours is not going to affect how much labour is used.

You are welcome :-)