Task: ABC versus Traditional Cost Analysis:
| |
|
|
Standard |
High-grade |
Total |
| Direct Labor |
|
$ 160,000 |
$ 80,000 |
$ 240,000 |
| Direct Materials |
|
$ 125,000 |
$ 114,000 |
$ 239,000 |
| CDs Produced |
|
320,000 |
120,000 |
440,000 |
| CD Selling Price |
|
$3.60 |
$ 5.80 |
|
|
|
|
Activity Level |
| |
|
Costs Assigned |
Standard |
High-grade |
Total |
| Number of Production Runs |
$ 300,000 |
20 |
10 |
30 |
| Quality Tests Performed |
$ 360,000 |
12 |
18 |
30 |
| Shipping Orders Processed |
$ 220,000 |
100 |
50 |
150 |
| Total Overhead |
$ 880,000 |
|
|
|
Q1. How much of the overhead will be assigned to each product if the three cost drivers are used to allocate overhead? What would be the cost per unit produced for each product?
Q2. How much of the overhead would have been assigned to each product if direct labor cost had been used to allocate overhead? What would have been the total cost per unit produced for each product?
Q3. How might the results explain why profits did not increase as much as management expected?