Question
Acme Manufacturing Company produces product A and product B. During 2014, 4,000 units of product A were produced and 4,000 units of product B. During
Acme Manufacturing Company produces product A and product B. During 2014, 4,000 units of product A were produced and 4,000 units of product B. During production of each product, quality inspections are required: 2 for each unit of product A and 10 for each unit of product B. Total 2014 inspection costs totaled $80,000. Each product requires one unit of a common component requiring handling. Total 2014 handling costs totaled $50,000. During 2014, 400 direct labor hours were required for product A and 800 for product B. (a) Under a traditional cost system, what is the total inspection and handling cost assigned to each unit of product A? Why? (b) Under a traditional cost system, what is the total inspection and handling cost assigned to each ubit product B? Why? (c) Under an activity based costing system, what is the total inspection and handling cost to be assigned to product A? Why? (d) Under an activity based costing system, what is the total inspection and handling cost to be assigned to product B? Why?
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