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	420	10.2	4,284
Product M6	520	7.2	3,744
Total direct labor-hours			8,028

The direct labor rate is $25.00 per DLH. The direct materials cost per unit for each product is given below:

	Direct Materials Cost per Unit
Product V9	$279.60
Product M6	$172.80

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	$	97,656	4,284		3,744		8,028
Product testing	Tests		72,008	780		1,040		1,820
Order size	MHs		390,000	4,500		4,080		8,580
		$	559,664

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.)

Answer 1

Traditional Costing Method

Predetermined Cost = 559,664 / Direct Labour hrs = 559,664 / 8,028

= $ 69.7 per Direct Labour hr

	V9	M6
Direct Material	$     279.60	$ 172.80
Direct Labour	$     255.00	$ 180.00
Overhead	$     711.04	$ 501.91
Unit cost	$ 1,245.64	$ 854.71

ABC Costing

Activity	Cost	Cost Driver	Activity Total	Activity Rate	V9	M6
Labor-related	$    97,656	DLHs	8,028	$            12.16	$    52,112.39	$    45,543.61
Product testing	$    72,008	Tests	1,820	$            39.56	$    30,860.57	$    41,147.43
Order size	$ 390,000	MHs	8,580	$            45.45	$ 204,545.45	$ 185,454.55
Total	$ 559,664				$ 287,518.42	$ 272,145.58

	V9	M6
Direct Material	$     279.60	$ 172.80
Direct Labour	$     255.00	$ 180.00
Overhead	$     684.57	$ 523.36
Unit cost	$ 1,219.17	$ 876.16