Reference no: EM131051444

Brixton Industries

(Contrasting Traditional and ABC Costing) Brixton Industries makes three products: widgets, gadgets, and helios. The following budget information relates to Brixton for next year.

	Widgets	Gadgets	Helios
Sales and production (units)	50,000	40,000	30,000
Selling price (per unit)	$45	$95	S73
Direct labour and materials (per unit)	$32	$84	565
Machine hours per unit in Machining Dept.	2	5	4
Direct labour hours per unit in Assembly Dept.	7	3	2

Overhead is allocated to production departments as follows:

• Machining Department at $1.20 per machine hour
• Assembly Department at $0.825 per direct labour hour

However, you have determined that the overheads could be reanalyzed into cost pools as below:

Cost pool	Cost ($)	Cost Driver	Quantity
Machining services	357,000	Machine hours	420,000
Assembly services	318,000	Direct labour hours	530,000
Set-up	26,000	Set-ups	520
Order processing	156,000	Customer orders	32,000
Purchasing	84,000	Supplier orders	11,200

You have also been provided with the following estimates for the current accounting period.

	Widgets	Gadgets	Helios
Number of set-ups	120	200	200
Customer orders	8,000	8,000	16,000
Supplier orders	3,000	4,000	4,200

1. Prepare a report showing profitability for each product for the next year using the traditional overhead allocation method.

2. Prepare a report showing profitability for each product using activity-based costing.

3. Explain the differences between the products' profitability using traditional and activity-based costing.