ANGWOO CO. manufactures variety of products. In the past, SANGWOO Co. has been using traditional costing system in which the predetermined overhead rate was 150% of direct labor. Selling prices had been set my multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, SANGWOO CO, has decided to switch to an activity-based costing system for manufacturing overhead cost using three activity cost pools. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for the next year are as follows: Activity Cost Pool Estimated Activity Estimated Overhead Cost Machine Set-up 400 Number of setups P150,000 Quality Control 1,500 Number of inspections 180,000 Other Overhead 30,000 Machine hours 480,000 Information (on a per units' basis) related to three popular products at SANGWOO CO. are as follows: Product A Product B Product C Direct materials cost 400 540 310 Direct labor cost 810 600 220 Number of setups 2 3 1 Number of inspections 1 3 1 Number of machine hours 4 8 10
SANGWOO CO. manufactures variety of products. In the past, SANGWOO Co. has been using traditional costing system in which the predetermined
|
Activity Cost Pool |
|
Estimated Activity |
Estimated Overhead Cost |
|
Machine Set-up |
400 |
Number of setups |
P150,000 |
|
Quality Control |
1,500 |
Number of inspections |
180,000 |
|
Other Overhead |
30,000 |
Machine hours |
480,000 |
Information (on a per units' basis) related to three popular products at SANGWOO CO. are as follows:
|
|
Product A |
Product B |
Product C |
|
Direct materials cost |
400 |
540 |
310 |
|
Direct labor cost |
810 |
600 |
220 |
|
Number of setups |
2 |
3 |
1 |
|
Number of inspections |
1 |
3 |
1 |
|
Number of machine hours |
4 |
8 |
10 |
Compute for the difference of the selling price in using traditional system and activity-based costing of product A.
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