Question

Inc., manufactures and sells two products: Product G8 and Product O0. Historically, the firm has used a traditional costing system, with direct labor hours as an activity base, to allocated manufaturing overhead to products. 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	770	5.7	4,389
Product O0	370	2.7	999
Total direct labor-hours			5,388

The direct labor rate is $22.80 per DLH. The direct materials cost per unit for each product is given below:

	Direct Materials Cost per Unit
Product G8	$120.10
Product O0	$120.50

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	$	59,055	4,389	999	5,388
Machine setups	setups		57,890	750	635	1,385
Order size	MHs		369,008	5,150	5,800	10,950
		$	485,953

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

• The unit product cost of Product G8 under traditional costing is greater than its unit product cost under activity-based costing by $185.50.

• The unit product cost of Product G8 under traditional costing is greater than its unit product cost under activity-based costing by $305.58.

• The unit product cost of Product G8 under traditional costing is less than its unit product cost under activity-based costing by $185.50.

• The unit product cost of Product G8 under traditional costing is less than its unit product cost under activity-based costing by $305.58.

Answer 1