Determine whether it should continue to use traditional

Reference no: EM133541995

Practice Problem

1) A company needs an analysis to determine whether it should continue to use traditional overhead allocation or activity-based costing. The company uses common machinery to manufacture two simple products. Each year, two production runs for each product require a similar setup effort. Manufacturing overhead includes a setup cost of $50,400 per year. Total overhead for the company, including the setup cost, is $198,000 annually, and direct labor hours are expected to total 18,000 for the year.

The following information is available for products A and B:

Product A Product B

Units produced 1,000 8,000
Direct material cost per unit $14 $14
Direct labor cost per unit $24 $24
Machine hours per unit 1 1
Direct labor hours per unit 2 2

Required:

a. calculate the cost per unit for each product using traditional overhead allocation.

b. calculate the cost per unit for each product using activity-based costing. Please use direct labor hours for the "Other overhead" allocation pool.

Reference no: EM133541995

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