Queen Company uses activity-based costing to determine product costs, and one of the products produced by this company is the product R40. The company makes and sells 300 units of this product a year, these units require 510 machine hours, 120 orders, and 60 inspection hours. The direct labor cost is $19 per unit of the product R40, and its unit selling price is $115 per unit. The product margin for the product R40 is $1.230. The information given in the below table is taken from the activity-based costing system of the company for all of its products. What is the amount of direct materials cost per unit of the product R40?* Activity Cost Pool Assembly Processing Orders Inspection Activity Measure Total Overhead Cost Machine Hours $840,000 Orders $108,500 Inspection Hours $138.000 Total Activity 40,000 3,100 3,000 $4.10 per unit $19.00 per unit $23.57 per unit $58.90 per unit None of the above

Answer is option e : None of the above.

Explanation:

here, we are asked to find the direct material cost per unit.

We can use the formula for selling price to find the direct material cost per unit.

Selling price = DM cost per unit+DL cost per unit+OH cost per unit based on activity based costing+profit margin per unit.

Given:

number of units = 300

DL cost per unit = 19

Selling price per unit = 115

profit margin per unit = product margin/number of units = 1230/300 = 4.1

Given, the company uses activity based costing

So to calculate OH cost per unit:

First we need to find the OH cost per activity level

For assembly : OH cost per activity = Total OH cost/activity level = 840,000/40,000 = 21 per machine hour.

For processing orders: OH cost per activity = Total OH cost/activity level = 108500/3100 = 35 per order

For inspection: OH cost per activity = Total OH cost/activity level = 138,000/3000 = 46 per inspection hour.

Given, product R40 requires:

510 machine hours

120 orders

60 inspection hours.

So assembly cost for R40 = cost per machine hour x machine hours used by R40 = 21x510 = 10710

Processing orders cost for R40 = cost per order x number of orders for R40 = 35x120 = 4200

inspection cost for R40 = cost per inspection hour x number of hours for R40 = 46x60 = 2760

Total OH cost for R40 = assembly cost for R40 + Processing orders cost for R40 + inspection cost for R40 = 10710+4200+2760 = 17670.

OH cost per unit = Total OH cost / number of units = 17670/300 = 58.9

applying to the formula:

Selling price = DM cost per unit+DL cost per unit+OH cost per unit based on activity based costing+profit margin per unit

115 = Direct material cost per unit + 19 + 58.9 + 4.1

115 = Direct material cost per unit + 82

taking 82 to the other side,

Direct material cost per unit = 115 - 82 = 33 per unit.