Chapter 4, Problem 11E

Contrasting Activity-Based Costing and Conventional Product CostingL04-2, L04-3, L04-4
Rusties Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:

Required:
1. Compute the activity rate for each of the activity cost pools.
2. The expected activity for the year was distributed among the company’s four products as follows:

Using the ABC data, determine the total amount of overhead cost assigned to each product.
3. Assume that prior to implementing ABC, Rusties used a conventional cost system thatapplied all manufacturing overhead to products based on direct labor-hours. Explain how theconventional overhead cost assignments would differ from the activity-based cost assignments withrespect to Product B.