Why the product using activity-based costing

Springs Company produces two types of calculators, scientific and business. Both products pass through producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products:

Product Related Data

• Units produced per year 30,000 300,000
• Prime Costs \$100,000 \$1,000,000 1,100,000
• Direct Labor hours 40,000 400,000 440,000
• Machine hours 20,000 200,000 220,000
• Production runs 40 60 100
• Inspection Hours 800 1,200 2,000
• Maintenance hours 900 3,600 4,500

Department Data

• Department 1 Department 2 Total
• Direct labor Hours:
• Scientific calculator 30,000 10,000 40,000
• Business calculator 45,000 355,000 400,000
• Total 75,000 365,000 440,000

Machine Hours:

• Scientific calculator 10,000 10,000 20,000
• Business calculator 160,000 40,000 200,000
• Total 170,000 50,000 220,000

• Setup costs \$90,000 \$90,000 180,000
• Inspection costs 70,000 70,000 140,000
• Power 100,000 60,000 160,000
• Maintenance 80,000 100,000 180,000
• Total \$340,000 320,000 660,000

1) Compute the overhead cost per unit for each product using a plantwide, unit based rate.

• Scientific calculator

2) Compute the overhead cost per unit for each product using departmental rates. In calculating ndepartment rates use machine hours for department 1 and direct labor hours for department 2.

• Scientific calculator

Repeat using direct labor hours for department 1 and machine hours for department 2.

• Scientific calculator

3) Compute the overhead cost per unit for each product using activity-based costing.

• Scientific calculator