Determining the cost of the product under ABC costing and traditional costing method.
Your company makes both widgets and gadgets. Data regarding these products is as follows:
|
|
Widgets
|
Gadgets
|
|
Direct materials per unit
|
$60.00
|
$45.00
|
|
Direct labor per unit
|
$9.60
|
$7.20
|
|
Direct labor-hours per unit
|
0.8 DLHs
|
0.6 DLHs
|
|
Estimated annual production
|
10,000 units
|
70,000 units
|
Your company has a traditional costing system in which manufacturing overhead is applied to units based upon direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:
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Estimated total manufacturing overhead
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$290,000
|
|
Estimated total direct labor hours
|
50,000 DLHs
|
REQUIRED:
1. Determine the full unit product costs for Widgets and Gadgets using the traditional costing system.
Your company is considering replacing its traditional costing system for determining unit product costs with an activity-based costing system. The ABC system would have the following three activity cost pools:
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Activities
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Activity Measures
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Estimated Overhead Cost
|
Expected activity widgets
|
Expected activity gadgets
|
Expected total activity
|
|
Direct labor
|
Direct labor hours
|
$150,000
|
8,000
|
42,000
|
50,000
|
|
Batch setups
|
Setups
|
$60,000
|
200
|
50
|
250
|
|
Safety testing
|
Number of tests
|
$80,000
|
80
|
20
|
100
|
|
Total manufacturing overhead costs
|
|
$290,000
|
|
|
|
REQUIRED:
2. Determine the full unit product costs for Widgets and Gadgets using the ABC system.