1. Arrow Co. makes two products, A and B, with the following information.
Price/unit DM/unit DL/unit Annual production and sales
Product A $20 0.6 pound 0.3 hour 3,000 units
Product B $40 0.8 pound 0.5 hour 200 units
DM costs $5 per pound and DL rate is $10 per hour for both products. Arrow started to implement activity-based costing in 2011 with additional data below:
Activity Cost Pool Assigned MOH cost Practical Capacity Actual Activity A: Actual Activity B:
Machining $16,000 2,000 machine hours 1,500 machine hours 100 machine hours
Setup $8,000 250 setups 120 setups 80 setups
Packaging $6,000 150 packages 80 packages 40 packages
(1) Arrow used a traditional costing system that allocates budgeted total MOH of $30,000 to products based on direct labor hours. How much MOH cost was allocated to Product B?
(2) Under the traditional costing system, how much MOH cost was allocated to each unit of Product A?
(3) Under activity-based costing, how much MOH cost will be allocated to each unit of Product A in 2011?
(4) Under activity-based costing, what is the product margin for Product B in 2011?
(5) Under activity-based costing, what is the total cost of unused capacity in 2011?
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