Question
A manufacturing company uses activity-based costing (ABC) to allocate overhead costs to its products. The company has identified three cost pools and their respective activity
A manufacturing company uses activity-based costing (ABC) to allocate overhead costs to its products. The company has identified three cost pools and their respective activity drivers: Setup costs ($50,000) based on the number of setups, Material handling costs ($30,000) based on the number of material moves, and Machine-related costs ($70,000) based on machine hours. If Product A requires 10 setups, 20 material moves, and 500 machine hours, while Product B requires 5 setups, 25 material moves, and 750 machine hours, calculate the overhead cost per unit for each product using activity-based costing. Discuss the advantages and disadvantages of ABC compared to traditional costing methods.
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