Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:

These products are customized to some degree for specific customers.

Required:

1.         The company’s manufacturing overhead costs for the year are expected to be $576,000. Using the company’s traditional costing system, compute the unit product Costs for the two products.

2.         Management is considering an activity-based costing system in which half of the overhead would continue to be allocated on the basis of direct labor-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:

Compute the unit product costs for the two products using the proposed ABC system.

3.         Explain why the product costs differ between the two systems.

Transcribed Image Text:

Rascon Parcel Direct materials cost per unit $13.00 $22.00 Direct labor cost per unit $6.00 $3.00 Direct labor-hours per unit 0.40 0.20 Number of units produced 20,000 80,000