Castenet Company uses a volume-based costing system that applies overhead cost based on direct labor hours at $250 per direct labor hour.
The company is considering adopting an activity-based costing system with the following data:
The two jobs processed in the month of June had the following characteristics:
Required:
(1)Compute the unit manufacturing costs of each job under the firm's current volume-based costing system.
(2)Compute the unit manufacturing costs of each job under the activity-based costing system.
(3)(a)Compare the unit manufacturing costs for Jobs A and B computed in requirements 1 and 2.
Why do the two cost systems differ in their total cost for each job?
(b)Why might these differences be important to the Company?

Question

Castenet Company uses a volume-based costing system that applies overhead cost based on direct labor hours at $250 per direct labor hour.
The company is considering adopting an activity-based costing system with the following data:  
The two jobs processed in the month of June had the following characteristics:  
Required:
(1)Compute the unit manufacturing costs of each job under the firm's current volume-based costing system.
(2)Compute the unit manufacturing costs of each job under the activity-based costing system.
(3)(a)Compare the unit manufacturing costs for Jobs A and B computed in requirements 1 and 2.
Why do the two cost systems differ in their total cost for each job?
(b)Why might these differences be important to the Company?

Quizplus · Accepted Answer

The Answer of Castenet Company uses a volume-based costing system that applies overhead cost based on direct labor hours at $250 per direct labor hour.
The company is considering adopting an activity-based costing system with the following data:  
The two jobs processed in the month of June had the following characteristics:  
Required:
(1)Compute the unit manufacturing costs of each job under the firm's current volume-based costing system.
(2)Compute the unit manufacturing costs of each job under the activity-based costing system.
(3)(a)Compare the unit manufacturing costs for Jobs A and B computed in requirements 1 and 2.
Why do the two cost systems differ in their total cost for each job?
(b)Why might these differences be important to the Company?

Castenet Company Uses a Volume-Based Costing System That Applies Overhead