Jarme Company makes two products and is implementing an Activity Based Costing (

Question

Jarme Company makes two products and is implementing an Activity Based Costing (ABC) system. Previously, all overhead had been applied on the basis of machine hours. The Company produces 100,000 units of product D and 5,000 units of product F.   

10,000 machine hours

What is the overhead cost per unit for Product F using ABC?

Cost Pool Driver and Level Cost in Pool Use of Driver by Product D Use of Driver by Product F Equipment Setup 500 setups $1,000,000 350 setups 150 setups Materials Ordering 10,000 orders $2,000,000 7,000 orders 3,000 orders Quality Control 4,000 inspections $500,000 2,000 inspections 2,000 inspections Machining 50,000 machine hours $5,000,000 40,000 machine hours

10,000 machine hours

Explanation / Answer

Head cost per Unit for Product F using ABC

-----------------------------------------------------------------------

Mfg overhead for Machining $ 50000000

No of units in batch 5000

Mfg overhead per Unit $ 10000

Mfg overhead per machine hour $ 2

No of units produces per Machine hour 10000

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