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ABC Inc. installed an activity based costing system several years ago. The company manufactures one product in a single facility and has identified five major
ABC Inc. installed an activity based costing system several years ago. The company manufactures one product in a single facility and has identified five major activity centers relating to the manufacturing overhead. Each unit requires 4 kilograms of direct material at $75.00 per kilogram and 60 hours of direct labour at $20.00 per hour. Each unit also requires the following activities: 2 purchase orders 1 test 15 templates 45 machine hours Required: 1. Compute the overhead rate for each activity center. (5 marks) 2. Compute the product cost per unit using activity-based costing. What would be the selling price if the company charged a 40% markup on cost? (7 marks) 3. How would the product cost and the selling price compare to the results obtained in part (2), if the company had used Estimated machine hours as the cost driver? (6 marks) 4. Briefly, explain why activity-based costing is better than using one activity driver such as machine hours for the whole plant. (2 marks)
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