For the hardware company in given Exercise, suppose that setup and testing costs are different for CPUs and monitors. Annual costs for setup and testing are $0.4 million and $0.7 million for CPUs and monitors, respectively. However, between two types of CPUs these costs are basically similar, as is also the case for monitors.
(a) Calculate the cost per unit of each product using the activity-based costing method.
(b) Discuss these unit costs in relation to those in given Exercise.
Exercise
An assemble-to-order hardware company has two types of central processing units (CPUs), C1 and C2, and two types of display monitors, M1 and M2. Unit C2 is slightly more complex then C1, as is M2 compared to M1. The annual production volume and direct costs are shown in Table 1. Overhead costs for this past year are shown in Table 2. Assume that setup and testing costs are similar for both types of CPUs and monitors.
(a) Calculate the cost per unit of each product using the unit-based costing method by allocating overhead based on direct-labor costs.
(b) Calculate the cost per unit of each product using the activity-based costing method.
(c) Discuss the unit costs calculated using these two methods.