Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen

Exercise 38

Required:
1. Calculate the unit overhead cost of the supreme juicer using assembly hours to assign overhead costs. Now, repeat the calculation using ABC to assign overhead costs. Did improving the accuracy of cost assignments solve Fresco's competitive problem? What did it reveal?
2. Now, assume that in addition to improving the accuracy of cost assignments, Charles observes that defective supplier components are the root cause of both the inspection and rework activities. Suppose further that Fresco has found a new supplier that provides higher-quality components such that inspection and rework costs are reduced by 50 percent. Now, calculate the cost of each product (assuming that inspection and rework time are also reduced by 50 percent) using ABC. The relative consumption patterns also remain the same. Comment on the difference between ABC and ABM.