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Maribela Co makes a range of products and sells them online. It uses activity based costing to allocate costs to its products. Its two most successful products are ABC 1 and ABC 2 but it makes approximately 20 other products in its factory. The company processes and despatches 12 million orders each year over its entire product range.
Information relating to ABC1 and ABC2 is as follows:
————–Sales Volume—–Average order size (units)
ABC 1————10m————————-8
ABC 2———–2.4m———————–1.2The total packing and despatching cost pool for Maribela Co is $18 million each year.
What is the packing and despatching cost per unit of ABC1 (to two decimal places)?
A $5.54
B $0.69
C $1.50
D $0.19The correct option is D
I am unable to calculate the right answer could you please tell how it is calculated?
The cost per order processed and despatched is $18/12 = $1.50.
ABC1 despatches 10M / 8 = 1.25M orders and therefore the total cost absorbed for ABC1 is 1.25M x $1.50 = $1.875M.
Therefore the cost per unit for ABC1 is 1.875M / 10M = $0.1875.
Have you watched my free lectures on activity based costing? The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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