MANAGERIAL ACCOUNTING FOR MANAGERS EBOOK
6th Edition
ISBN: 9781264445615
Author: Noreen
Publisher: MCG
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Chapter 3A, Problem 3A.2E
Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO3-5
Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined
These products are customized to some degree for specific customers.
Required:
- The company’s
manufacturing overhead costs for the year are expected to be $576,000. Using the company’s traditional costing system, compute the unit product costs for the two products. - Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated based on direct labor-hours and half would be allocated based on engineering design time. This time is expected to be distributed as follows during the upcoming year:
- Compute the unit product costs for the two products using the proposed activity-based absorption costing system.
- Explain why the product costs differ between the two systems.
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Kunkel Company makes two products and uses a conventional costing system in which a single plantwide
predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the
upcoming year follow:
Mercon
$ 10.00
Direct materials cost per unit
Direct labor cost per unit
Direct labor-hours per unit
Number of units produced
$ 3.00
0.20
10,000
These products are customized to some degree for specific customers.
Wurcon
$ 8.00
$ 3.75
0.25
40,000
Required:
1. The company's manufacturing overhead costs for the year are expected to be $336,000. Using the company's
conventional costing system, compute the unit product costs for the two products.
2. Management is considering an activity-based costing system in which half of the overhead would continue to
be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design
time. This time is expected to be distributed as follows during the upcoming year:
1.…
Chapter 3A Solutions
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