Zhedong Electronics Company in Hangzhou, China, plans to use activity-based costing to determine its product costs. It presently uses a single plantwide factory overhead rate for allocating factory overhead to products, based on direct labor hours. The total factory overhead cost is as follows (currency unit in Chinese RMB, \): Department Factory Overhead Production Support Production (factory overhead only) Total cost ¥1,225,000 175,000 ¥1,400,000 The company determined that it performed four major activities in the Production Support Department. The budgeted activity costs are as follows: Production Support Department Budgeted Activity Cost * 428,750 245,000 183,750 367,500 ¥1,225,000 Setup Production control Quality control Materials management Total Zhedong estimated the following activity-base usage and units produced for each of its thi products: Number of Direct Production Material Products Units Labor Hrs. Setups Orders Inspections Requisition LCD TV... 10,000 25,000 80 80 35 320 Tablet.... 2,000 10,000 40 40 40 400 Smartphone. 50,000 140,000 175,000 30 Total cost 62,000 125 125 75 750 Instructions 1. Which method provides more accurate product costing? Why?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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Zhedong Electronics Company in Hangzhou, China, plans to use activity-based costing to
determine its product costs. It presently uses a single plantwide factory overhead rate for
allocating factory overhead to products, based on direct labor hours. The total factory
overhead cost is as follows (currency unit in Chinese RMB, ¥):
Department Factory Overhead
Production Support
Production (factory overhead only)
Total cost
¥1,225,000
175,000
¥1,400,000
The company determined that it performed four major activities in the Production Support
Department. The budgeted activity costs are as follows:
Production Support Department Budgeted Activity Cost
Setup
Production control
*428.750
245,000
183,750
367,500
¥1,225,000
Quality control
Materials management
Total
Zhedong estimated the following activity-base usage and units produced for each of its three
products:
Number of
Direct
Production
Material
Products
Units
Labor Hrs.
Setups
Orders
Inspections
Requisitions
LCD TV...
10,000
25,000
80
80
35
320
Tablet.....
2,000
10,000
40
40
40
400
Smartphone..
50,000
62,000
140,000
30
Total cost
175,000
125
125
75
750
Instructions
1. Which method provides more accurate product costing? Why?
Transcribed Image Text:Zhedong Electronics Company in Hangzhou, China, plans to use activity-based costing to determine its product costs. It presently uses a single plantwide factory overhead rate for allocating factory overhead to products, based on direct labor hours. The total factory overhead cost is as follows (currency unit in Chinese RMB, ¥): Department Factory Overhead Production Support Production (factory overhead only) Total cost ¥1,225,000 175,000 ¥1,400,000 The company determined that it performed four major activities in the Production Support Department. The budgeted activity costs are as follows: Production Support Department Budgeted Activity Cost Setup Production control *428.750 245,000 183,750 367,500 ¥1,225,000 Quality control Materials management Total Zhedong estimated the following activity-base usage and units produced for each of its three products: Number of Direct Production Material Products Units Labor Hrs. Setups Orders Inspections Requisitions LCD TV... 10,000 25,000 80 80 35 320 Tablet..... 2,000 10,000 40 40 40 400 Smartphone.. 50,000 62,000 140,000 30 Total cost 175,000 125 125 75 750 Instructions 1. Which method provides more accurate product costing? Why?
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