Paparo Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly $ 813,600 48,000 machine-hours Processing orders $ 65,195 1,700 orders Inspection $ 110,592 1,440 inspection-hours Data concerning the company's product Q79Y appear below: Annual unit production and sales 550 Annual machine-hours 1,140 Annual number of orders 120 Annual inspection hours 25 Direct materials cost $ 43.00 per unit Direct labor cost $ 41.33 per unit According to the activity-based costing system, the average cost of product Q79Y is closest to:

$132.1 per unit

Explanation:

For determining the average cost of product Q79Y first we have to solve the activity rate for each activity i.e shown below;

For assembly

= $813,600 ÷ 48,000 machine hours

= $16.95 per machine hour

For processing order

= $65,195 ÷ 1,700  orders

= $38.35 per order

For inspection

= $110,592 ÷ 1,440 inspection hours

= $76.8 per inspection hours

Now the total activity rate is

= $76.8 + $38.35 + $16.95

= $132.1 per unit

Now the average cost of product is

= Direct materials + direct labor + assembly + processing orders + inspection

= $43 + $41.33 +  $35.132 +  $5.438 + $3.7701

= $132.1 per unit

Working notes

For Assembly  

= ($16.95 × 1,140 ) ÷ 550

= $19,323 ÷ 550

= $35.132

For Processing orders  

= ($38.35 × 78) ÷ 550

= $5.438

For Inspection  

= ($76.8 × 27) ÷ 550

= 3.7701

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