Reference no: EM13356573

Determining the cost of the product under ABC costing and traditional costing method.

Your company makes both widgets and gadgets. Data regarding these products is as follows:

	Widgets	Gadgets
Direct materials per unit	$60.00	$45.00
Direct labor per unit	$9.60	$7.20
Direct labor-hours per unit	0.8 DLHs	0.6 DLHs
Estimated annual production	10,000 units	70,000 units

Your company has a traditional costing system in which manufacturing overhead is applied to units based upon direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Estimated total manufacturing overhead	$290,000
Estimated total direct labor hours	50,000 DLHs

 REQUIRED:

1. Determine the full unit product costs for Widgets and Gadgets using the traditional costing system.

Your company is considering replacing its traditional costing system for determining unit product costs with an activity-based costing system. The ABC system would have the following three activity cost pools:

Activities	Activity Measures	Estimated Overhead Cost	Expected activity widgets	Expected activity gadgets	Expected total activity
Direct labor	Direct labor hours	$150,000	8,000	42,000	50,000
Batch setups	Setups	$60,000	200	50	250
Safety testing	Number of tests	$80,000	80	20	100
Total manufacturing overhead costs		$290,000

REQUIRED:

2. Determine the full unit product costs for Widgets and Gadgets using the ABC system.