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Calculate production cost per unit using ABC costing

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Question - Aigo Mobile, produces two smartphones: Basic, which retails for $500 per unit, and Pro, the latest smartphone launched at $900 per unit. Aigo Mobile wants to optimize the pricing and cost management of each product line. In 2021, Aigo Mobile will produce 10,000 Basic units and 15,000 Pro units. Currently, overhead is allocated based on Machine Hours.The Aigo Mobile controller wondered if the current accounting system had provided the best information for making selling pricing decisions. After meeting with key managers and several operations and sales staff, the Aigo Mobile Controller agreed to implement ABC and define four activities: machine set-up, production, quality control, and delivery. Aigo Mobile has also compiled the following information on the company's manufacturing overhead costs for the year ended December 31, 2021

Aactivity(Allocation Base)

Total Activity Cost

Activity Trigger Unit

Basic

Pro

Machine set-up (number of set-ups)

930,000

8,000

22,000

Production (number of machine hours)

1,350,000

150,000

300,000

Quality Control (number of inspections)

1,440,000

32,000

64,000

Shipping (shipping amount)

105,000

100

150

 

Basic

Pro

Direct Raw Materials per unit

40

70

Direct Labor Cost per hour

32

32

Direct Labor Hours per unit

2.80

4.25

Required -

1. Calculate production costs per unit using traditional costing for each product.

2. Calculate production cost per unit using ABC costing for each product.

Reference no: EM133136789

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