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Golf carts absorb $117,000 of fabrication, $64,000 of assembly, $46,000 of setup and $49,000 of inspection overhead, and 500 golf carts are budgeted. What is the overhead per golf cart?
A$430 per unit
B$552 per unit
C$505 per unit
D$620 per unit
Answer & Solution
Correct answer: B. $552 per unit
1. Add the four activity costs charged to golf carts: $117,000 plus $64,000 plus $46,000 plus $49,000.
2. That total is $276,000 of factory overhead for the whole golf cart line.
3. Divide by the 500 golf carts budgeted for the year.
4. $276,000 divided by 500 units gives $552 per unit.
5. $430 per unit is the go kart figure, built from $301,000 over 700 units.
6. Dividing by the wrong output volume is the usual slip here, since the two products have different unit counts.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.6 Activity-Based Costing for a Manufacturing Business to Estimate Factory Overhead_
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