ABC versus traditional costing. Motorola Corporation manufactures cell phones and pagers in a particular factory. Assume that overhead costs are currently allocated using direct labor hours, but the controller has recommended an activity-based costing system using the following data:
Activity Level
Activity Cost Driver Cost Cell Phones Pagers
|
Production Setup
|
Number of Setups
|
$100,000
|
12
|
8
|
|
Material Handling and Requisition
|
Number of Parts
|
20,000
|
70
|
30
|
|
Packaging and Shipping
|
Number of Units Shipped
|
160,000
|
120,000
|
40,000
|
Total Overhead .......................................................................................... $280,000
Compute the amount of overhead allocated to each of the products under activity-based costing.
Compute the amount of overhead to be allocated to each product using labor hours as the allocation base. Assume 60,000 labor hours were used to assemble cell phones and 20,000 labor hours were used to assemble pagers.
Should the company adopt an ABC system?