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Answer to Problem on Practice Test 2

# Answer to Problem on Practice Test 2 - Activity Cost...

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Problem 26 Demski Company Volume-Based Costing vs. ABC Costing Exam 2, #1 A B Total Cost of direct materials \$200,000 \$250,000 \$450,000 Cost of direct labor 80,000 150,000 230,000 Number of machine hours 12,000 28,000 40,000 Number of units manufactured and sold 5,000 10,000 15,000 1. Traditional System: Predetermined OH Rate \$7.50 \$90,000.00 \$210,000.00 Total Cost 370,000.00 610,000.00 Cost per unit \$74.000 \$61.000 2. ABC Costing Activity: Cost Driver Overhead Cost Driver Rate Machine setup Setup hours \$100,000 1,000 \$100.00 700 300 1,000 Inspection Inspection hours 50,000 2,500 \$20.00 1500 1000 2,500 Power Kilowatt hours 50,000 25,000 \$2.00 12500 12500 25,000 Supervision Direct labor hours 100,000 10,000 \$10.00 3000 7000 10,000 Total Overhead \$300,000
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Unformatted text preview: Activity Cost Allocation Machine setup \$70,000.00 \$30,000.00 100,000 Plant management 30,000.00 20,000.00 50,000 Supervision of direct labor 25,000.00 25,000.00 50,000 Quality inspection 30,000.00 70,000.00 100,000 Total Overhead \$155,000.00 \$145,000.00 Total \$435,000.00 \$545,000.00 Cost per unit \$87.000 \$54.500 Difference \$(13.000) \$6.500 #3 - High volume products such as B are allocated more overhead than low volume products such as A. High-volume products subsidize low-volume products, meaning that the company is undercosting A and overcosting B. ABC provides the company with a more accurate product cost and directs management to the high-volume, more profitable products....
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