Compare traditional costing versus activity based costing.

Scenario: The company has decided to move to activity-based costing for circuit board production related to products PCB124 and PCB136. Please create a spreadsheet comparing the two costing methods.

Total Indirect Cost for the quarter

Assembly $630,000

Soldering $270,000

Inspection $160,000

PCB124 PCB136

Direct cost (materials, labor) $162,400 $178,240

Machine hours (assembly) 480 1,080

Number of units produced (soldering) 6,000 4,000

Testing hours (inspection) 6,000 8,000

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When you have completed the spreadsheet, answer the following:

What is the total manufacturing cost per unit using traditional costing for PCB124? For PCB136? Use machine hours as the cost allocation base.

What is the total manufacturing cost per unit using activity based costing for PCB124? For PCB136?

What conclusions can be drown from spreadsheet results?

Spreadsheet should include-

Indirec cost driver (machine hours) per product-

Allocated indirec costs per product-

Direct costs per product-

Manufacturing overhead per product-

total manufacturing costs per product-

Number of units per product-

Total manufacturing costs per unit-

Activity-based costing system

Assembly cost driver (machine hours)per unit-

Allocated assembly cost per unit-

Soldering cost driver (units) per unit-

Allocated soldering cost per unit-

Inspection cost driver (testing hours) per unit-

Allocated inspection cost per unit-

Cost per produce per unit-

Direct costs per unit-

Manufacturing overhead per unit-

Assembly per unit-

Soldering per unit-

Inspection per unit-

Total manufacturing costs per product per unit-

Number of units

Total manufacturing costs per unit