Assume that a company makes only three products: Product A, Product B, and Product C. Currently, the company uses a traditional cost system that relies on plantwide overhead cost allocation based on direct labor-hours. It is considering replacing its traditional cost system with an activity-based costing (ABC) system for internal management purposes. The ABC system would include a total of four activities: Assembly (allocated to products based on direct labor-hours), Machine Setups (allocated to products based on number of setups), Material Handling (allocated to products based on the number of material moves), and Product Design (allocated to products based on the number of products). Product A Product B Product C Number of units produced 1,000 units 7,000 units 2,000 units Direct labor hours per unit 2 hours 2 hours 2 hours Number of setups 22 setups 50 setups 28 setups Number of material moves 600 moves 400 moves 200 moves Number of products 1 product 1 product 1 product Using the activity-based costing approach, what percent of the company’s total Machine Setups activity cost would be allocated to Product C?
Assume that a company makes only three products: Product A, Product B, and Product C. Currently, the company uses a traditional cost system that relies on plantwide overhead cost allocation based on direct labor-hours. It is considering replacing its traditional cost system with an activity-based costing (ABC) system for internal management purposes. The ABC system would include a total of four activities: Assembly (allocated to products based on direct labor-hours), Machine Setups (allocated to products based on number of setups), Material Handling (allocated to products based on the number of material moves), and Product Design (allocated to products based on the number of products). Product A Product B Product C Number of units produced 1,000 units 7,000 units 2,000 units Direct labor hours per unit 2 hours 2 hours 2 hours Number of setups 22 setups 50 setups 28 setups Number of material moves 600 moves 400 moves 200 moves Number of products 1 product 1 product 1 product Using the activity-based costing approach, what percent of the company’s total Machine Setups activity cost would be allocated to Product C?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume that a company makes only three products: Product A, Product B, and Product C. Currently, the company uses a traditional cost system that relies on plantwide
The ABC system would include a total of four activities: Assembly (allocated to products based on direct labor-hours), Machine Setups (allocated to products based on number of setups), Material Handling (allocated to products based on the number of material moves), and Product Design (allocated to products based on the number of products).
| Product A | Product B | Product C | ||||
|---|---|---|---|---|---|---|
| Number of units produced | 1,000 | units | 7,000 | units | 2,000 | units |
| Direct labor hours per unit | 2 | hours | 2 | hours | 2 | hours |
| Number of setups | 22 | setups | 50 | setups | 28 | setups |
| Number of material moves | 600 | moves | 400 | moves | 200 | moves |
| Number of products | 1 | product | 1 | product | 1 | product |
Using the activity-based costing approach, what percent of the company’s total Machine Setups activity cost would be allocated to Product C?
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