Question

Traditional Product Costing versus Activity-Based Costing
Ridgeland Inc. makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The Accounting Department has identified the following overhead costs and cost drivers for next year:

Setup costs	$1,224,000	Number of setups	7,200
Ordering costs	325,000	Number of orders	65,000
Maintenance	2,300,000	Number of machine hours	80,000
Power	220,000	Number of kilowatt hours	440,00
Total predicted direct labor hours for next year is 52,000. The following data are for two recently completed jobs: Job 201 Job 202 Cost of direct materials $15,500 $17,000 Cost of direct labor $23,600 $67,300 Number of units completed 1,250 1,100 Number of direct labor hours 220 280 Number of setups 15 19 Number of orders 21 42 Number of machine hours 460 360 Number of kilowatt hours 200 300 a. Determine the unit cost for each job using a traditional plantwide overhead rate based on direct labor hours. Round cost per unit answers to two decimal places when applicable. Job 201 Job 202 Direct materials $Answer $Answer Direct labor Answer Answer Overhead Answer Answer Total cost $Answer $Answer Units produced Answer Answer Cost per unit $Answer $Answer b. Determine the unit cost for each job using ABC. Round cost per unit answers to two decimal places when applicable. Job 201 Job 202 Direct materials $Answer $Answer Direct labor Answer Answer Setup cost Answer Answer Ordering costs Answer Answer Maintenance costs Answer Answer Power Answer Answer Total job costs $Answer $Answer Units produced Answer Answer Cost per unit $Answer $Answer

Answer 1

a
	Setup cost	1224000
	Ordering costs	325000
	Maintenance	2300000
	Power	220000
	Total overhead cost	4069000
	Predetermined overhead rate = total overhead cost / total direct labor hours
	Total overhead cost	4069000
	Total direct labor hours	52000
	Predetermined overhead rate	78.25	Per hour
		Job 201	Job 202
	Predetermined overhead rate	78.25	78.25
	Direct labor hours	220	280
	Overhead cost	17215	21910
	Traditional plant wide	Job 201	Job 202
	Direct material	15500	17000
	Direct labor	23600	67300
	Overhead	17215	21910
	Total cost	56315	106210
	Units produced	1250	1100
	Cost per unit	45.05	96.55
b	ABC		Cost driver	Cost per driver
	Setup cost	1224000	7200	170
	Ordering costs	325000	65000	5
	Maintenance	2300000	80000	28.75
	Power	220000	44000	5
	Total overhead cost	4069000
		Job 201	Cost per driver	Job 202
	Setup cost	2550	170	3230
	Ordering costs	105	5	210
	Maintenance	13225	28.75	10350
	Power	1000	5	1500
	Total overhead cost	16880		15290
	Traditional plant wide	Job 201	Job 202
	Direct material	15500	17000
	Direct labor	23600	67300
	Setup cost	2550	3230
	Ordering costs	105	210
	Maintenance	13225	10350
	Power	1000	1500
	Total cost	55980	99590
	Units produced	1250	1100
	Cost per unit	44.78	90.54