ecreational Products, Inc., produces headlamps for campers, hikers, and other people who want the convehi nience of a light at night without carrying a flashlight. It currently allocates overhead costs using direct-labor Exercise 4.38 Limitations of Traditional Costing Methods Pbk q jours, but the controller has recommended an activity-based costing system using the following data:

(LO 1, 4,5, 6) ——

Activity Level 4 \ i] Single Dual See ae Activity Cost-Driver Base Cost Bulb Product Bulb Product Bf 72ks Z Production setup Number of setups $ 60,000 tZev0o 12 Aloo > 3eor18 Pees he ‘eo elise Materials handlingand Number of parts per unit 13,500 Seg 9- Seo Pee) 18] 97 ic ; : isition Aged SGCec hes requisi es 1 boy) ekegng and shipping Number of units shipped 30,000 UrAS 40,000 12329, 80,000] prees:

2% XK /9P5e9 : 03 $4341 overhead $103,500 ss Re. 9

= 2o7eo = FASO -) 7oeok

—— Required 12.

SNe DUAL cm

= EY Compute the amount of overhead to be allocated to each product under activity-based costing.

FES 00 Ger Ose Compute the amount of overhead to be allocated to each product using direct-labor hours as the 20700 Cre CDGre allocation base. Assume that the number of direct-labor hours required to assemble each unit is

.i-- Gj 5 0.5 per unit for the single bulb product and 1.0 L.O per unit for the dual bulb product. The company

| 7800 7 £00) produced 40,000 units of the single bulb product and 80,000 units of the dual bulb product.

c. Should the company follow the controller’s recommendations? Is the total overhead cost affected Ly | a Te } } by the choice of traditional or ABC methods for assigning overhead costs to products