Which cost method would you use to manage this business?
The company is considering using an activity-based costing system to compute unit product costs for external financial reports instead of its traditional system based on direct labor hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below.
Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product C Product D Total
Machine setups $ 13,630 130 160 290
Purchase orders 85,750 750 1,000 1,750
General factory 67,760 4,000 2,160 6,160
$167,140
Determine the unit product cost of each product for the current period using the activity-based costing approach.
Which cost method would you use to manage this business and why?