Question:
Product costing in an ABC system The August Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in handheld video phones. Consider the following data regarding component T24:
|
Direct materials cost
|
$82.00
|
|
Direct labor cost
|
$23.00
|
|
Activity costs allocated
|
?
|
|
Manufacturing product cost
|
$?
|
The activities required to build the component follow:
|
|
|
Cost Allocated
|
|
Activity
|
Allocation Base
|
to Each Unit
|
|
Start station
|
Number of raw component chasis
|
6 * $ 1.60
|
=
|
$9.60
|
|
Dip insertion
|
Number of dip insertions
|
? * $ 0.20
|
=
|
5.20
|
|
Manual insertion
|
Number of manual insertions
|
10 * $ 0.40
|
=
|
?
|
|
Wave solder
|
Number of components soldered
|
6 * $ 1.70
|
=
|
10.20
|
|
Backload
|
Number of backload insertions
|
8 * $ ?
|
=
|
6.40
|
|
Test
|
Testing hours
|
0.43 * $ 60.00
|
=
|
?
|
|
Defect analysis
|
Defect analysis hours
|
0.13* $ ?
|
=
|
$5.20
|
|
Total indirect activity costs
|
|
|
|
$?
|
Requirements
1. Complete the missing items for the two tables.
2. Why might managers favor this ABC system instead of August's older system, which allocated all conversion costs on the basis of direct labor?