AS Company has a factory that produces custom cabinets. It has multiple product lines.

Materials & labor for the cabinets are determined by each job. Assume the following average costs.

The company estimates that it will have 32,000 direct labor hours in total for the kitchen cabinets.

The materials include $2,000 for the wood & other materials on a per job basis. It requires 40 hours of labor on average. The hourly rate is $10. The sales price will be set at a markup of 80%.

It assumes 800 units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows. Amounts are per year unless identified otherwise:

Salaries- office & administrative $ 400,000

Salaries for factory supervisors & janitors $ 200,000

Office Rent $ 90,000

Factory Rent $ 80,000

Office Utilities & Misc office expenses(based on units sold) $ 20,000

SalesTravel(based on units sold) $ 24,000

Insurance - office $ 14,000

Depreciation - office equipment $ 45,000

Depreciation for factory equipment $ 70,000

Advertising $ 15,000

Sales commissions(based on units sold) $ 50,000

Factory Property taxes $ 10,000

Maintenance for factory equipment $ 80,000

Question

Assume another product line is also being considered shelves. Use this information:

-Higher skilled workers = would result in paying them $15 per hour.

-Additional MOH costs for the year will be $150,000. These costs will be in addition to the costs already being incurred. These costs are due to the additional product line & also related to the current product lines for additional production abilities. The two lines will share all MOH costs.

A. Should the company consider using Activity-Based Costing? Discuss why or why not? Areas to include in the discussion but not limited to the following: impact on product cost, implications of not using the right allocation & its impact on price if any, etc.

B. How specifically would ABC help allocate MOH costs?