Reference no: EM13890247

Printware Products Inc. produces printers for wholesale distributors. It has just com- pleted packaging an order from Hawes Company for 450 printers. Before the order is shipped, the controller wants to compare the unit costs computed under the company's new activity-based costing system with the unit costs computed under its traditional costing system. Printware's traditional costing system assigned overhead costs at a rate of 240 percent of direct labor cost.

Data for the Hawes order are as follows: direct materials, $17,552; purchased parts, $14,856; direct labor hours, 140; and average direct labor pay rate per hour, $17.

Data for activity-based costing related to processing direct materials and purchased parts for the Hawes order follow.

Activity                                    Cost Driver                  Activity  Cost rate              Activity Usage Engineering systems design   Engineering hours                 $28 per engineering hour   18 engineering hours Setup         Number of setups $36 per setup         12 setups

Parts production                     Machine hours            $37 per machine hour        82 machine hours Product assembly       Assembly hours                                       $42 per assembly hour                                            96 assembly hours Packaging  Number of packages   $5.60 per package                                     150 packages Building occupancy        Machine hours      $10 per machine hour                                         82 machine hours

Required:

1. Use the traditional costing approach to compute the total cost and the product unit cost of the Hawes order.

2. Using the cost hierarchy, identify each activity as unit level, batch level, product level, or facility level.

3. Prepare a bill of activities for the activity costs.

4. Use ABC to compute the total cost and product unit cost of the Hawes order. (Round your answer to the nearest cent.)

5. What is the difference between the product unit cost you computed using the traditional approach and the one you computed using ABC? Does the use of ABC guarantee cost reduction for every order?