Trucking for the year EXERCISE 7-13 Con trasting Traditional and ABC Product Cos

Question

Trucking for the year EXERCISE 7-13 Con trasting Traditional and ABC Product Costs [L01, LOS5) Model X100 sells for $120 per unit whereas Model X200 offers advanced features and $500 per unit X200 next year. The direct material cost per unit is $50 for Mode The company's total manufacturing overhead for the year is expected to be S Model X100 requires two direct labor-hours and a unit of Model X200 requires five direct labor hours. The direct labor wage rate is $20 per hour Required: 1. The company currently applies manufacturing overhead to products using direct labor-hours sells for 5,000 units of Model . Managemer l X100 and $220 for Mod el X200 1,995,000. A nit as the allocation base. Using this traditional approach, compute the product margins for X100 and X200 Management is considering an activity-based costing system and would like to know w impact this would have on product costs. Preliminary analysis suggests that under activity- based costing, a total of $1,000,000 in manufacturing overhead cost would be assigned to Model X100 and a total of $600,000 would be assigned to Model X200. In addition, a total of nonmanufacturing overhead would be applied to Model X100 and a total of $350,000 would be applied to Model X200. Using the activity-based costing approach, pute the product margins for X100 and X200. Explain why the product margins computed in requirement (1) differ from those computed i requirement (2). com- XERCISE 7-14 Comprehensive Activity-Based Costing Exercise [LO2, LO3, LO4, LO5) dvanced Products Corporation has supplied the following data from it t hased costing

Explanation / Answer

1…. Model X 100 Model X 200 Units sold 50000 5000 Selling price 120 500 Sale value 6000000 2500000 Less: Costs: Direct material 50*50000= 2500000 220*5000= 1100000 Direct labor 2*20*50000= 2000000 5*20*5000= 500000 Mfg.OH 1995000/125000*100000= 1596000 1995000/125000*25000= 399000 Product Margin -96000 501000 405000 2... Model X 100 Model X 200 Units sold 50000 5000 Selling price 120 500 Sale value 6000000 2500000 Less: Costs: Direct material 50*50000= 2500000 220*5000= 1100000 Direct labor 2*20*50000= 2000000 5*20*5000= 500000 Mfg.OH 1000000 600000 Non-mfg.OH 150000 350000 Product Margin 350000 -50000 300000 Ohs applied as per Traditional costing 1596000 399000 1995000 Activity based costing 1150000 950000 2100000 Reduction/(Excess) 446000 -551000 -105000 So difference in product margin 350000 -50000 300000 OHS allocation as per ABC costing is less by 446000 for Model X 100 & more by 551000 for Model X 200 resulting in   350000 more profits for Model X 100 &    (551000) loss for Model X 200

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