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	790	5.9	4,661
Product O0	390	2.9	1,131
Total direct labor-hours			5,792

The direct labor rate is $23.00 per DLH. The direct materials cost per unit for each product is given below:

	Direct Materials Cost per Unit
Product G8	$122.10
Product O0	$122.50

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	$	60,055	4,661	1,131	5,792
Machine setups	setups		58,890	850	645	1,495
Order size	MHs		370,008	5,250	6,000	11,250
		$	488,953

Which of the following statements concerning the unit product cost of Product G8 is true? (Round your intermediate calculations to 2 decimal places.)

• a) The unit product cost of Product G8 under traditional costing is less than its unit product cost under activity-based costing by $175.94.

• b) The unit product cost of Product G8 under traditional costing is less than its unit product cost under activity-based costing by $296.02.

• c) The unit product cost of Product G8 under traditional costing is greater than its unit product cost under activity-based costing by $296.02.

• d) The unit product cost of Product G8 under traditional costing is greater than its unit product cost under activity-based costing by $175.94.

Answer 1

traditional method uses single cost driver to allocate cost

ABC costing uses different cost driver to allocate cost

Traditional Method

OH rate = Total cost/ Total Direct labor hours

=$488,953/5,792

=$84.42 per Direct labor hours

Cost allcoation to G8 = OH rate* labor hours used by G8

=$84.42*4,661

=$393,481.62

Unit product cost
Direct material	$122.10
DIrect Labor	$135.7[23*$5.9]
OH allocated	$498.07[$393,481.62/790 units]
Unit product cost	$755.87

abc costing

Activity Cost Pools	Activity Measures	Overhead Cost	Total	Cost per activity A	G8 Activty B	Cost allocated AXB
Labor-related	DLHs	60,055	5,792	$10.368611[$60,055/5,792]	4,661	$48,328.10]
Machine setups	setups	58,890	1,495	$39.39130[$58,890/1495]	850	33,482.61
Order size	MHs	370,008	11,250	$32.8896[$370,008/11,250]	5,250	$172,670.4
		488,953				$254,481.11

Unit product cost
Direct material	$122.10
DIrect Labor	$135.7[23*$5.9]
OH allocated	$322.13[$254,481.11/790 units]
Unit product cost	$579.93

Unit product cost as per traditional costing is greater than ABC costing by [$755.87-579.93] $175.94

Answer D)

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