Calculate indirect manufacturing costs assigned to Product A

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Problem - Carter, Inc. produces two different products, Product A and Product B. Carter uses a traditional volume- based costing system in which direct labor hours are the allocation base. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design, Production, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.50/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows:

 

Activity Rate

Usage by Product A

Usage by Product B

Design (Engineering Hours)

$600/hour

200

300

Production (Direct Labor Hours)

$1.25

100,000

300,000

Inspection (Batches)

$500

300

100

Required -

a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.

b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.

c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.

d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.

e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Reference no: EM133024696

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