Schiff Company produces seven products. PQ-6 costs $240.00 per unit under their traditional cost system using one cost driver. An analysis of the activities and their costs revealed that three cost drivers would be used under the new ABC system. The new cost of PQ-6 was determined to be $190.00 per unit.
-The total amount of overhead costs assigned to product PQ-6 using the traditional cost method is ________ the total amount assigned using ABC.

Question

Quizplus · Accepted Answer

The traditional cost system likely allocated the overhead costs based on a single cost driver that did not accurately reflect the actual activities that drove costs for PQ-6. By switching to an ABC system with three cost drivers, the cost of PQ-6 was reduced from $240 to $190 per unit. This indicates that the previous allocation of overhead costs was likely overestimating the cost of PQ-6, and therefore the total amount of overhead costs assigned using the traditional cost method is likely more than the total amount assigned using ABC.

Schiff Company Produces Seven Products