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Traditional and Activity Based Costing Methods

Electronic World Co. manufactures two types of radios, Model1 which is their high feature radio and Model2 their standard radio type. Below is the detailed production requirements for both types of radios.

Model 1 Model 2
Number of radios 1000 2000
Direct materials $20/unit $10/unit
Direct Labor Hrs at 10$/hr 4hrs 2hrs

Machine time 3hrs 2hrs
Production Runs 1 run of 1000 2 runs of 1000

The Manufacturing Overhead costs for Electronic World Co. is identified as $100,000, which is split across 2 activities.

Cost Cost Driver
Machine costs $70,000 Machine hours
Setup costs of $30,000 Production runs

Calculate the Total Cost of the products using:
a) Traditional costing method.
b) Activity based costing method.

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Solution Preview

Note: Please see the attached document for a more in-depth solution.
Calculate the Total Cost of the products using
a) The traditional costing method.
We will allocate the overheads as per labor hour in dollars ($)

Model 1 Model ...

Solution Summary

This solution calculates the total cost of the products being used using traditional methods and activity based costing methods.