Question

Eliezrie, Inc., manufactures and sells two products: Product G8 and Product O0. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product G8 800 6.0 4,800 Product O0 400 3.0 1,200 Total direct labor-hours 6,000 The direct labor rate is $23.10 per DLH. The direct materials cost per unit for each product is given below: Direct Materials Cost per Unit Product G8 $123.10 Product O0 $123.50 The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Activity Cost Pools Activity Measures Overhead Cost Product G8 Product O0 Total Labor-related DLHs $ 60,555 4,800 1,200 6,000 Machine setups setups 59,390 900 650 1,550 Order size MHs 370,508 5,300 6,100 11,400 $ 490,453 Which of the following statements concerning the unit product cost of Product G8 is true? (Round your intermediate calculations to 2 decimal places.) Multiple Choice A.The unit product cost of Product G8 under traditional costing is greater than its unit product cost under activity-based costing by $171.48. B.The unit product cost of Product G8 under traditional costing is less than its unit product cost under activity-based costing by $171.48. C. The unit product cost of Product G8 under traditional costing is greater than its unit product cost under activity-based costing by $291.56. D. The unit product cost of Product G8 under traditional costing is less than its unit product cost under activity-based costing by $291.56.

Answer 1

correct option is "A" -

Unit cost under tradition costing is higher than ABC by 752.14-580.68=171.46 (approx to 171.48)

Unit cost under Traditional costing :

Estimated overhead rate : Estimated overhead /estimated direct labor hours

                = 490453/6000

               =$ 81.74 per DLH

	G8
Direct material	123.10
Direct labor (6*23.1)	138.6
overhead (6*81.74)	490.44
Unit cost	752.14

B)Unit cost under ABC :

	G8
Direct material	123.10
Direct labor (6*23.1)	138.6
overhead	318.98
Unit cost	580.68

overhead cost per unit :

Labor related : (60555*4800/6000)	48444
Machine setup (59390*900/1550)	34484.52
order size (370508*5300/11400)	172253.72
Total overhead	255182.24
overhead cost per unit (255182.24 /800)	318.98