EXERCISE 4–11 Contrasting Activity-Based Costing and Conventional Product Costing LO4–2, LO4–3, LO4–4 Rusties Company recently implemented an activity-based costing system. At the beginning of the year, management page 181 Labor-related

(DLHs)

Purchase orders

(orders)

Product testing

(tests)

Template etching

(templates

)

General factory

(MHs)

made the following estimates of cost and activity in the company’s five activity cost pools:

Required:

1. Compute the activity rate for each of the activity cost pools.

2. The expected activity for the year was distributed among the company’s four products as follows:

Expected Activity Activity Cost Pool Product A

Product B

Product C

Product D

500 100 700 700 80 105 180 160 200 60 0 90 0 14 10 4 3,400 2,200 1,800 2,600 Direct materials Direct labor Using the ABC data, determine the total amount of overhead cost assigned to each product.

3. Assume that prior to implementing ABC, Rusties used a conventional cost system that applied all manufacturing overhead to products based on direct labor-hours. Explain how the conventional overhead cost assignments would differ from the activity-based cost assignments with respect to Product B.

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