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Zipper Company: Cost drivers, overhead applied

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Zipper Company has identified the following overhead activities, costs, and activity drivers for the coming year:
(see attached table)

Zipper produces two models of sewing machines with the following expected prime costs and activity demands:
(see attached table)

The company's normal activity is 4,000 direct labor hours.

a. Determine the unit cost for each model using direct labor hours to apply overhead.
b. Determine the unit cost for each model using the four activity drivers.
c. Which method produces the more accurate cost assignment? Why?

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Solution Summary

Your tutorial with instructional comments is attached and shows you the traditional one cost driver cost per unit and the activity based costing with four cost driver cost per unit. ABC is the more accurate and the reason is given.

Solution provided by:
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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