Assume that a pet food manufacturer is considering adding two types of pet food

Question

Assume that a pet food manufacturer is considering adding two types of pet food to its existing product line. Research had determined that good demand exists for dog food in 40-pound bags and cat food in 1/2pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year: Refer to the data above. How much overhead cost will be assigned to each unit of product using activity-based costing (ABC)? Dog food: $4.62: cat food: $4.62. Dog food: $2.64; cat food: $2.64. Dog food: $8.60: cat food: $0.33. Dog food: $0.26: cat food: $8.60. Dog food: $0.12; cat food: $3.85. Which of the following would not be considered a product cost? Direct material costs. Factory supervisor's salary. Direct labor costs. Budget accountant's salary. Manufacturing overhead costs.

Explanation / Answer

Answer: Dog food: $8.60, cat food : $0.33

MH is based on total batches. 105,000 / (200 + 150) = $300
SC is based on total weight. Each unit of dog food is 40 lbs. and each unit of cat food is 1/2 pound. 820,000 / [(100,000 x 40) + (200,000 x 1/2)] = $0.20

Dog Food: (200 x $300) + (4,000,000 x $0.20) = 860,000
Cat Food: (150 x $300) + (100,000 x $0.20) = 65,000

Dog Food: 860,000 / 100,000 Units = $8.60
Cat Food: 65,000 / 200,000 Units = $0.33

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