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Question - Claire Company produces Tablets and Books. Total overhead costs traditionally have been allocated on the basis of direct labor hours. After implementing activity-based costing, managers determined the following cost pools and cost drivers. They also decided that general costs should no longer be allocated to products.
Activity Pool
Department Costs
Cost Driver
Binding
$225,500
Number of units
Printing
779,000
Machine hours
Product design
172,200
Change orders
General
594,500
None
Total overhead costs
$1,771,200
Other information is as follows:
Tablets
Books
Units
62,500
20,000
Direct materials cost per unit
$2.80
$10.00
Direct labor cost per unit
$3.80
$7.80
Direct labor hours
25,000
16,000
125,000
120,000
1,200
2,000
Calculate predetermined OH rate.
Determine the unit product cost for Tablets and Books using the traditional costing system.
Calculate ABC rates.
Determine the unit product cost for Tablets and Books using the activity-based costing system.
Show that General cost is the difference between the total overhead costs allocated to products under the traditional system and the total cost allocated to products under the activity-based costing system.
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