What is the difference in the cost of Widget B, per product, using a traditional labor allocation vs. activity based costing method, assuming the three main cost activities are:
> Direct Labor
> Machine Hours
> # of Purchase Orders
Assume the following bases & General Ledger
Data:
Direct labor hours = 1000
Machine hours = 250
Purchase orders = 100
Widget A Widget B Total
Direct labor hours = 400 600 1000
Machine hours = 100 150 250
Purchase orders = 50 50 100
General Ledger
Payroll taxes $1,700
Machine maintenance $750
Purchasing Dept. labor $3,500
Fringe benefits $1,500
Purchasing Dept. Supplies $300
Equipment depreciation $1000
Electricity $1500 Unemployment insurance $1,300
A. The traditional method UNDER counts the cost by $475 per unit
B. The traditional method OVER counts the cost by $475 per unit
C. The traditional method UNDER counts the cost by $380 per unit
D. The traditional method OVER counts the cost by $380 per unit