Question

Exercise 9-44 (Algo) Activity-Based Costing versus Traditional Costing (LO 9-4, 5, 6)

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $296,000. During that time, the company produced 12,000 units of the M-008 and 2,600 units of the M-123. The direct costs of production were as follows:

	M-008		M-123		Total
Direct materials	$	96,000	$	104,000	$	200,000
Direct labor		96,000		52,000		148,000

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

			Activity Level
Cost Driver		Costs		M-008		M-123		Total
Number of machine-hours	$	116,000		8,000		2,000		10,000
Number of production runs		80,000		10		30		40
Number of inspections		100,000		10		40		50
Total overhead	$	296,000

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

m-008 m-123

total over head

total unit cost

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

   m-008 m-123

total over head

total unit cost

Answer 1