Reference no: EM133051637

Problem:

Proxi Analytics Ltd manufactures two types of sensors - Proximity and Reflex. During 2021, 150 Proximity and 100 Reflex sensors were manufactured.

Indirect production costs incurred were $150,000.

Indirect costs and activities were the following:

Activity	Cost Driver	Amount ($)
Trimming	Number of machine hours	$75,000
Final Assembly	Number of components	$45,000
Pre-shipment inspection	Number of inspections	$30,000
TOTAL		$150,000

The cost driver volumes for each sensor were the following: 

Cost Driver	Proximity	Reflex
Number of machine hours	4,500	3,000
Number of components	700	800
Number of inspections	1,500	1,000

a) Calculate the indirect activity cost rate for each activity using Activity-Based Costing (ABC).  Show all calculations.

b) Allocate the indirect manufacturing overhead costs to the sensors using ABC. Show all calculations.

c) If manufacturing overhead is allocated on the basis of only machine hours for the year, calculate the predetermined manufacturing overhead rate. Show all calculations.

d) Allocate the indirect manufacturing overhead costs to the sensors using the traditional method. Show all calculations.

e) Distinguish between activity based costing and traditional costing. Discuss why it is more appropriate for Proxi Analytics Ltd to use ABC.