Tasty Sauce, Inc. is currently comparing their current use of traditional costing with what results would look like if they had instead implemented Activity-Based Costing (ABC). This company creates two products: regular soy sauce and sodium-free soy sauce. They will be producing 125,000 bottles of regular soy sauce and 108,000 bottles of sodium-free soy sauce. Under traditional costing, Manufacturing Overhead (MOH) is allocated at $43,760.80 to regular soy sauce and $16,482.20 to sodium-free soy sauce. In ABC, MOH is allocated at $39,802.62 to regular soy sauce and $20,440.38 to sodium-free soy sauce. Which of the following is true?
A) Unit cost will be higher for regular soy sauce under ABC than traditional costing.
B) Unit cost will be higher for regular soy sauce under traditional costing than ABC.
C) Unit cost will be higher for sodium-free soy sauce under traditional costing than ABC.
D) Unit cost will be lower for sodium-free sauce under ABC than traditional costing.

Question

Quizplus · Accepted Answer

This question requires you to consider how allocated MOH will impact other items under both traditional costing and ABC. Choice B is correct because after calculating the per unit costs for all items, traditional costing per unit cost would be higher for regular soy sauce than under ABC.