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ACCA Applied Skills · Performance Management · Activity-based costing

Kiln Co makes products P and Q. Overheads are: material handling $92,000 (driver: production batches) and inspection $70,000 (driver: inspections). Batches: P 40, Q 6. Inspections: P 60, Q 40. P: 2,000 units produced, prime cost $39 per unit. What is the total ABC cost per unit of P?

The total ABC cost per unit of P is $100. Batch rate is $2,000 giving $80,000, and inspection rate is $700 giving $42,000 for P. Overhead of $122,000 over 2,000 units is $61 per unit, and adding $39 prime cost gives $100.

  1. A$100Correct
  2. B$61
  3. C$71.40
  4. D$79

Explanation

Handling rate = $92,000 / 46 batches = $2,000, so P gets $80,000. Inspection rate = $70,000 / 100 = $700, so P gets $42,000. P overhead = $122,000 / 2,000 = $61 per unit; add prime cost $39 = $100. $71.40 results from a single rate per unit ($162,000 / 5,000 = $32.40 plus $39), and $79 ignores inspection cost.

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