MANAGERIAL ACCOUNTING QUESTION GRP 2.5

6.12 Activity-Based Costing Questions 40 and 41 are based on the following information. Believing that its traditional cost system may be providing misleading information, an organization is considering an activity-based costing (ABC) approach. It now employs a full cost system and has been applying its manufacturing overhead on the basis of machine hours. The organization plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted. Budgeted Activity 6,000,000 Budgeted Cost US $ 720,000 Activity Material handling Setup costs Machining costs Quality control Cost Driver No. of parts handled No. of setups Machine hours 750 315,000 540,000 30,000 500 No. of batches 225,000 Total manufacturing overhead cost: US $1,800,000 Cost, sales, and production data for one of the organization's products for the coming year are as follows: Prime costs: US $4.40 Direct material cost per unit Direct labor cost per unit 75 (.05 DLH @ US $15.00/DLH) Total prime cost US $5.15 Sales and production data: Expected sales. 20,000 units Batch size Setups 5,000 units 2 per batch 5 parts Total parts per finished unit Machine hours required 80 MH per batch Answer CL 40. If the organization uses the traditional full cost system, the cost per unit for this product for the coming year will be A. US $5.39 B. US $5.44 C. US $6.11 D. US $6.95 41. If the organization employs an activity-based costing system, the cost per unit for the product described for the coming year will be A. US $6.00 B. US $6.08 C. US $6.21 D. US $6.30