A company makes two products using the same type of materials and skilled workers. The following information is available:
Product A Product B
Budgeted volume (units) 1,000 2,000
Material per unit ($) 10 20
Labour per unit ($) 5 20
Fixed costs relating to material handling amount to $100,000. The cost driver for these costs is the volume of material purchased.
General fixed costs, absorbed on the basis of labour hours, amount to $180,000.
Using activity-based costing, what is the total fixed overhead amount to be absorbed into each unit of product B (to the nearest whole $)?
Total material budget ((1,000 units x $10) + (2,000 units x $20)) = $50,000
Fixed costs related to material handling = $100,000
OAR = $2/$ of material
Product B = $2 x $20 = $40
Total labour budget ((1,000 units x $5) + (2,000 units x $20) = $45,000
General fixed costs = $180,000
OAR = $4/$ of labour
Product B = $4 x $20 = $80
Total fixed overhead cost per unit of Product B ($40 + $80) = $120