ABC Company_Overhead allocation
Account_tutor
ABC Company uses an overhead costing system based on direct labor hours for it two products X and Y. The company is considering adopting an activity-based costing system, and collects the following information for the month of October:
| Product X | Product Y |
Production Units | 20,000 | 2,000 |
Direct Materials cost per unit | $50.00 | $40.00 |
Direct Labor cost per unit | $10.00 | $10.00 |
Direct Labor hours | 34,000 | 6,000 |
Over Head | Over Head | Total | Activity Consumption | Activity Consumption |
Cost Pool | Cost | Activity | Product X | Product Y |
Machine Shop | $60,000 | 1,000 setups | 300 | 700 |
Engineering Change Order | 80,000 | 100 orders | 20 | 80 |
Facility Rent | 80,000 | 1,000 sq ft | 300 | 700 |
1. Compute the unit manufacturing costs of each product under a traditional (i.e. volume based) costing system using “direct labor cost” as the allocation basis.
2. Compute the unit manufacturing cost of each product under the activity-based costing system. Use the over head cost pools and the corresponding activity for each pool that have been provided to you for allocating over head costs.
3. Which product appears “more expensive” to manufacture under a traditional costing system compared to ABC costs? Why?
11 years ago
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