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Product costing in an ABC system The August Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in handheld video phones. Consider the following data regarding component T24:
Direct materials cost
$82.00
Direct labor cost
$23.00
Activity costs allocated
?
Manufacturing product cost
$?
The activities required to build the component follow:
Cost Allocated
Activity
Allocation Base
to Each Unit
Start station
Number of raw component chasis
6 * $ 1.60
=
$9.60
Dip insertion
Number of dip insertions
? * $ 0.20
5.20
Manual insertion
Number of manual insertions
10 * $ 0.40
Wave solder
Number of components soldered
6 * $ 1.70
10.20
Backload
Number of backload insertions
8 * $ ?
6.40
Test
Testing hours
0.43 * $ 60.00
Defect analysis
Defect analysis hours
0.13* $ ?
$5.20
Total indirect activity costs
Requirements
1. Complete the missing items for the two tables.
2. Why might managers favor this ABC system instead of August's older system, which allocated all conversion costs on the basis of direct labor?
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