Reference no: EM132633704

The Zalucki Company plans to use ABC method to determine its product costs. It presently uses a single plant wide factory overhead rate for allocating overhead to products, based on direct labor hours. The total factory overhead cost is as follows:

Department Factory Overhead

Production Support 1,225,000

Production (FOH only) 175,000

Total Cost 1,400,000

The company determined that it performed four major activities in the Production Support Department. These activities, along with their budgeted costs, are as follows:

Production Support Activities Budgeted Costs

Setup 428,750

Production Control 245,000

Quality Control 183,750

Materials Management 367,500

Total 1,225,000

Zalucki Company estimated the following activity base usage and units produced for each of its three products:

                                       TV                 Computer                  Cellphone                  Total

Number of Units          10,000                2,000                   50,000               62,000

Direct Labor Hours          25,000             10,000                  140,000           175,000

Setups                              80                  40                          5                    125

Production Orders                80                    40                         5             125

Inspections                         35                     40                         0                 75

Material Requisition               320                   400                        30                750

REQUIRED:

Problem 1. Determine the FOH for TV, Computer and Cellphone under the single plant wide factory overhead rate method. Use direct labor hours as the activity base

Problem 2. Determine the factory overhead costs for TV, Computer and Cellphone under activity- based costing

Problem 3. Which method provides more accurate product costing? Why?