XYZ Company manufactures two products: Product DDD and Product EEE. Indirect manufacturing costs (overhead) are budgeted at $600,000 annually. The company is concerned about the assignment of the manufacturing support costs. Other data include the following:

a. Estimate the manufacturing cost per unit of each product if support costs are assigned to products on the basis of units.

b. Estimate the manufacturing cost per unit of each product if support costs are assigned to products on the basis of direct labor hours using the following chart.

c. Estimate the manufacturing cost per unit of each product if support costs are assigned to products on the basis of activities using the following charts.

d. What do you conclude with respect to strategic costing (which product is more profitable), assuming both products have the same selling price? Be specific in discussing the differences in assigning indirect costs based on number of units, based on direct labor hours, and based on ABC.

e. Which factors should be considered in determining the drivers? Do you agree with the drivers used, or do you suggest others? Elaborate.

f. Should the company first try to identify some of the preceding costs as directly traceable to the two products? If so, why?

g. Could management use the information about the activities to learn about what is done and suggest improvements? If you were on the ABC team, which questions would you ask the employees?

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General Data Direct materials cost Direct labor ($12/hour) Estimated production in units Direct labor hours per unit Direct labor hours per product DDD $25 $60 5,000 5 25,000 EEE $30 $84 8,000 7 56,000