Reference no: EM133816978

Assignment: Activity Based Costing & Management

The Rubrics Corporation made four products: widgets, gadgets, smidgets, and smadgets. Exhibit 1 summarizes the direct labor, overhead, and direct material costs associated with these products. Rubrics' CFO was considering implementing an activity-based costing system as a means of improving product pricing. Exhibit 2 presents the cost allocation bases for the three main overhead cost drivers (depreciation, set-up, and rent). Exhibit 3 shows the product resource requirements by cost driver. Notice, for example, that the set-up requirement for widgets is 200 hours. Among other things, the CFO wanted to compare the overhead estimates per product based on the traditional costing and ABC methods. In addition, the CFO wanted to understand, computer or calculate the following:

I. Using the traditional costing method, compute the overhead costs per product.

II. Using the traditional costing method, compute the total costs per product.

III. ABC

IV. Assuming ABC allocated overhead more accurately, which products were incorrectly priced using the traditional costing method? What difficulties might result from incorrectly budgeted products? Hint: Think about how capital resources should be allocated to the most efficient opportunities.

V. What actions might be explored to deal with the mispriced products?

VI. Compare assigned costs per product under both methods. Why had activity-based costing changed the total costs assigned to each product?

VII. What were two circumstances where traditional and ABC costing would likely yield similar or equal overhead costs?