Question

Rondeau, Inc., manufactures and sells two products: Product V9 and Product M6. 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 V9	360	9.6	3,456
Product M6	460	6.6	3,036
Total direct labor-hours			6,492

The direct labor rate is $24.40 per DLH. The direct materials cost per unit for each product is given below:

	Direct Materials Cost per Unit
Product V9	$276.60
Product M6	$169.80

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 V9		Product M6		Total
Labor-related	DLHs	$	96,156	3,456		3,036		6,492
Product testing	Tests		70,808	690		920		1,610
Order size	MHs		387,000	4,200		3,840		8,040
		$	553,964

Required:

Calculate the difference between the unit product costs under the traditional costing method and the activity-based costing system for each of the two products. (Round your intermediate calculations and final answers to 2 decimal places. Enter your answers as positive values.)

	Product V9	Product M6
Traditional unit product cost
ABC unit product cost
Difference

Answer 1

SOLUTION:

	Product V9	Product M6
Traditional unit product cost	$ 1330.01	$ 894.02
ABC unit product cost	$ 1298.83	$ 918.33
Difference	$ 31.18	($ 24.31)

CALCULATIONS:

Traditional Costing
	Product V9	Product M6
Direct material	$ 276.60	$ 169.80
Direct labor	$ 234.24	$ 161.04
	(24.40 * 9.6)	(24.40 * 6.6)
Overheads (Note 1)	$ 819.17	$ 563.18
	(85.33*9.6)	(85.33*6.6)
Total	$ 1330.01	$ 894.02

ABC
	Product V9	Product M6
Direct material	$ 276.60	$ 169.80
Direct labor	$ 234.24	$ 161.04
	(24.40 * 9.6)	(24.40 * 6.6)
Overheads(Note 2)	$ 787.99	$ 587.49
Total	$ 1298.83	$ 918.33
Difference	$ 31.18	($ 24.31)

Note 1:

Predetermined overhead rate = Estimated overhead / Estimated DLH = $553,964 / 6492 = $85.33 per labor hour

Note 2: Calculation of Overheads:

For Product V9

Activity cost pool	Overhead rates	Product V9 activity	Overheads for Product V9
labor related	14.81 (96156/6492)	3456	51183.36
Machine Setups	43.98 (70808/1610)	690	30346.20
Order zize	48.13 (387000/8040)	4200	202146.00
Total			283675.56
No. of Units			360
Per unit			787.99

For Product M6

Activity cost pool	Overhead rates	Product M6 activity	Overheads for Product M6
labor related	14.81 (96156/6492)	3036	44963.16
Machine Setups	43.98 (70808/1610)	920	40461.60
Order zize	48.13 (387000/8040)	3840	184819.20
Total			270243.96
No. of Units			460
Per unit			587.49