Carter,Inc.uses a traditional volume-based costing system in which direct labor hours are the allocation base.Carter produces two different products: Product A,which uses 100,000 direct labor hours,and Product B,which uses 300,000 direct labor hours.Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design,Production,and Inspection.Under the traditional volume-based costing system,the predetermined overhead rate is $2.50/direct labor hour.Under the ABC system,the cost of each activity and proportion of the activity drivers used by each product are as follows:
Required:
a.Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b.Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c.Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d.Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Question

Carter,Inc.uses a traditional volume-based costing system in which direct labor hours are the allocation base.Carter produces two different products: Product A,which uses 100,000 direct labor hours,and Product B,which uses 300,000 direct labor hours.Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design,Production,and Inspection.Under the traditional volume-based costing system,the predetermined overhead rate is $2.50/direct labor hour.Under the ABC system,the cost of each activity and proportion of the activity drivers used by each product are as follows:
  Required:
a.Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b.Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c.Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d.Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Quizplus · Accepted Answer

The Answer of Carter,Inc.uses a traditional volume-based costing system in which direct labor hours are the allocation base.Carter produces two different products: Product A,which uses 100,000 direct labor hours,and Product B,which uses 300,000 direct labor hours.Carter is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,000,000 across three activities: Design,Production,and Inspection.Under the traditional volume-based costing system,the predetermined overhead rate is $2.50/direct labor hour.Under the ABC system,the cost of each activity and proportion of the activity drivers used by each product are as follows:
  Required:
a.Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b.Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c.Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d.Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?