Question
Aresco Corporation manufactures two products: Product G51B and Product E48X. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing
Aresco Corporation manufactures two products: Product G51B and Product E48X. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products G51B and E48X.
| Activity Cost Pool | Activity Measure | Total Cost | Total Activity | |
| Machining | Machine-hours | $100,000 | 5,000 | MHs |
| Machine setups | Number of setups | $300,000 | 500 | setups |
| Product design | Number of products | $80,000 | 2 | products |
| General factory | Direct labor-hours | $350,000 | 10,000 | DLHs |
| Activity Measure | Product G51B | Product E48X |
| Machine-hours | 2,000 | 3,000 |
| Number of setups | 270 | 230 |
| Number of products | 1 | 1 |
| Direct labor-hours | 3,000 | 7,000 |
Required:
- Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product G51B?
- Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product E48X?
- Using the ABC system, what percentage of the total overhead cost is assigned to Product G51B?
- Using the ABC system, what percentage of the total overhead cost is assigned to Product E48X?
- Why would a company want to implement ABC instead of using a plantwide overhead rate?
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