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