Activity based vs. traditional costing
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ABC currently uses traditional costing procedures, applying $410,000 of overhead to products X and Y on the basis of direct labor hours. The firm is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes is:
Pool #1 Pool #2 Pool #3
Product (DLH) (SU) (PC)
X 900 30 1,500
Y 1,400 50 1,000
Pool Cost $90,000 $140,000 $180,000
A) Overhead cost allocated to product Y by using traditional costing procedures would be:
B) Overhead cost allocated to product Y by using activity-based costing would be:
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Solution Summary
This provides the steps to calculate the Allocation of overheads.
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ABC currently uses traditional costing procedures, applying $410,000 of overhead to products X and Y on the basis of direct labor hours. The firm is considering a shift to activity-based costing and the creation of individual cost pools that ...
Purchase this Solution
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