Betenbaugh, Inc., manufactures and sells two products: Product E4 and Product L8

Question

Betenbaugh, Inc., manufactures and sells two products: Product E4 and Product L8. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

The direct labor rate is $29.00 per DLH. The direct materials cost per unit is $223.90 for Product E4 and $122.30 for Product L8.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

The unit product cost of Product E4 under activity-based costing is closest to:

Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product E4 100 7.0 700 Product L8 400 6.0   2,400 Total direct labor-hours   3,100

Explanation / Answer

Answer:

Calculation of Unit Product Cost for Product E4 under Activity Based Costing;

Total Production Units of E4 = 400 units

Total Direct Material Cost = $ 223.90 x 400 = $ 89,560

Activity Costs;

Labour Related = $ 73,005 x 700 / 3,100 = $ 16,485

Production Orders = $ 42,924 x 500 / 1,200 = $ 17,885

General Factory = $ 709,050 x 4,300 / 8,700 = $ 350,450

Total Cost of 400 units of Product E4 = $ 474,380

And Unit Product Cost of Product E4 = $ 474,380 / 400 units = $ 1,185.95 or close to $ 1,186.

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