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Activity 4: Elaborate Activity: By team/group Based on the data, Fur Buddy Pet Shop's accounting department provided management with the following report: Traditional costing estimate:
Activity 4: Elaborate Activity: By team/group Based on the data, Fur Buddy Pet Shop's accounting department provided management with the following report: Traditional costing estimate: Overhead rate per machine hour P100,000 Manufacturing costs for 2,000 units: Direct materials P50,000 Direct labor 75,000 Applied overhead 1,000,000 Total cost P1,125,00 Cost per unit (1, 125,000/2,000) P 562.50 Activity-Based Costing system estimate: Electric power overhead rate (per KW) P50,000 Inspection cost overhead rate (per INSP) 150,000 Manufacturing costs for 2,000 units Direct materials P 50,000 Direct labor 75,000 Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any means, electronic, mechanical, photocopying. recording, or otherwise of any part of this document, without the permission of SLU, is strictly prohibited. 14 Applied overhead 1,150,000 Total cost P1,175,000 Cost per unit (1,175,000/2,000) P 637.50 Required: A. Explain the difference between activity-based costing and traditional costing and describe how ABC might enhance the financial reporting of Fun Buddy Bookstore. B. If Fun Buddy Bookstore were setting a sales price based on a 20% mark up, how would profit be affected it the company did not change to an ABC system? Present your answer in good format, assume figures
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