microsoft.windowscommunicationsapps 8wekyb3d8bbwe/LocalState/iles/50/3159ymidter
ID: 2404745 • Letter: M
Question
microsoft.windowscommunicationsapps 8wekyb3d8bbwe/LocalState/iles/50/3159ymidterm2-13164 The next thres questions are based on the following A company is considering switching to an activity-based costing (ABC) system. The company produces and sells two products: Basic and Pro. The production of the Pro products requires more expensive materials and more experienced workers. The company consists of two departments: Production (where all manufacturing activities are taken) and Marketing (which engages in selling and admin activity only). The company's tradirional costing system computes unit product costs as dictated by GAAP: direct labor cost (DLC) is used as the allocation base for manufacturing overhead cost (the overhead rate is rounded to the nearest cent). The ABC system will include in unit costs all costs easily associated with units. In addition, in the ABC system, there are four major indirect activities: Machine Setups Special Processing, Factory Supervision, and Customer Relations In the ABC system, Customer Relations costs will be associated with customers; the rest of the costs will be associated with units of the two products. 9% of Customer Relations cost relates to manufacturing and is incurred in the Production Department the rest of the Cusiomer Relations cost is incurred in the Marketing Department The prices, direct material cost (DM), shipping cost and DI.Hs below are given for one unit of the produsct Hourly Shipping DLHs Units Price S150 S250 Product Basic50$44 S10 S15 $1 S2 Pro 4000 oo0 b500 The company collected the data for ABC as follows: Activity measures used Pro 5%0.2 Activity Measure s of setups Machine hours DLC Basic Activity Cost Pool 06 cost 40 12016o. 2 S 360,000 Machine Selup Special Processing Factory Supervision Customer Relations (on 5 customers) 135,000 8,000 12,000 S 225,000 S 200,00 spoo traditional and ABC systems? 4 What is the difference between the Pro products unit costs computed by the S 2.25 per unit. S 2.25 per unit. S 4.25 per unit. syslem, the unit cost of the Pro product is lower by A. Under the traditional costing B. Under the traditional costing system, the unit cost of the Pro product is higher by 4.25 D. Under the traditional costing system, the unit cost of the Pro product is higher by None of the abovead ?? ? End 8 4Explanation / Answer
predetermined overhead rate 4.10 (360000+135000+225000+18000)/((6000*10*1)+(4000*2*15)) Traditional method pro product cost DM $60 DL (2*15) 30 Manufacturing overhead (4.1*30) 123.00 Toatl product cost $213 working Direct labor cost (6000*10*1)+(4000*2*15)) 180000 Activity Based costing Machine setup 360000/160*120 270000 Special processing 135000/20000*12000 81000 factory supervision 225000/180000*120000 150000 Customer relation (200000*9%)/10000*4000 7200 Total 508200 No. of units 4000 Manufacturing overhead per unit 127.05 AbC pro product cost DM $60 DL (2*15) 30 Manufacturing overhead 127.05 Toatl product cost $217.05 Pro Traditional costing $213 ABC $217.25 Lower by $4.25 Option C under traditional costing the unit cost of Pro product is lower by $4.25 If any doubt please comment
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