Share
Explore BrainMass

Traditional Costing vs. Activity Based Costing

Pyrad Corporation makes ultra-lightweight backpacking tents. Data concerning the company's two product lines appear below:

Deluxe Standard
Direct materials per unit.................................. $60.00 $45.00
Direct labor per unit.................................. $9.60 $7.20
Direct labor-hours per unit....................................... 0.8 DLHs 0.6 DLHs
Estimated annual production................................... 10,000 unites 70,000 units

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Estimated total manufacturing overhead............................ $290,000
Estimated total direct labor-hours.................................. 50,000 DHLS

Required:
1. Determine the unit product costs of the Deluxe and Standard products under the company's traditional costing system.
2. The company is considering replacing its traditional costing system for determining unit product costs for external reports with an activity-based costing system. The activity-based costing system would have the following three activity cost pools:

Activities & Activity Measures Estimated Expected Activity
Overhead Cost Deluxe Standard Total
Supporting direct labor (direct labor-hours)...$150,000 8,000 42,000 50,000
Batch setups (setups)................ 60,000 200 50 250
Safety testing (tests)................................. 80,000 80 20 100
Total manufacturing overhead cost...............$290,000

3. Determine the unit product cost of the Deluxe and Standard products under the activity based costing system.

Attachments

Solution Summary

The solution explains how to calculate the product cost using traditional costing and activity based costing

$2.19