ATC 5-1 Business Applications Case Using ABC to improve product costing Drilling Innovations Inc. produces specialized cutting heads used by companies that drill for oil and natural gas. The company recently implemented an ABC system for three of its products and is interested in evaluating its effectiveness before converting to an ABC system for all of its products. To perform this evaluation the company has compiled data for the three products using both the traditional system and the new ABC system. The traditional system uses a single driver (machine hours). The ABC system uses a variety of cost drivers related to the activities used Page 248 to produce the cutting heads. The three products involved in the trial run of the ABC system were GS-157, HS-241, and OS- 367. The following data relate to these products. Product GS-157 HS-241 OS-367 Totals Selling Price per Unit $19.30 17.50 15.10 Units Produced 120,000 90,000 40,000 Total Costs Allocated: Traditional Costing $1,600,000 1,100,000 400,000 $3,100,000 Cost per Unit: Traditional Costing $13.3333 12.2222 10.0000 Total Cost Allocated: ABC $1,500,000 1,050,000 550,000 $3,100,000 Cost per Unit ABC $12.5000 11.6667 13.7500

ATC 5-1 Business Applications Case Using ABC to improve product costing Drilling Innovations Inc. produces specialized cutting heads used by companies that drill for oil and natural gas. The company recently implemented an ABC system for three of its products and is interested in evaluating its effectiveness before converting to an ABC system for all of its products. To perform this evaluation the company has compiled data for the three products using both the traditional system and the new ABC system. The traditional system uses a single driver (machine hours). The ABC system uses a variety of cost drivers related to the activities used Page 248 to produce the cutting heads. The three products involved in the trial run of the ABC system were GS-157, HS-241, and OS- 367. The following data relate to these products. Product GS-157 HS-241 OS-367 Totals Selling Price per Unit $19.30 17.50 15.10 Units Produced 120,000 90,000 40,000 Total Costs Allocated: Traditional Costing $1,600,000 1,100,000 400,000 $3,100,000 Cost per Unit: Traditional Costing $13.3333 12.2222 10.0000 Total Cost Allocated: ABC $1,500,000 1,050,000 550,000 $3,100,000 Cost per Unit ABC $12.5000 11.6667 13.7500

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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