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Demski Company has used a two - stage cost allocation system for many years. In the first stage, plant overhead costs are allocated to two
Demski Company has used a twostage cost allocation system for many years. In the first
stage, plant overhead costs are allocated to two production departments, P and P based
on machine hours. In the second stage, Demski uses direct labor hours to assign overhead
costs from the production departments to individual products A and B
Budgeted factory overhead costs for the year are $ The budgeted and actual machine
hours for P are hours. The budgeted and actual machine hours for P are
hours.
After attending a seminar to learn the potential benefits of adopting an activitybased costing
system ABC Ted Demski, the president of Demski Company, is considering implementing an
ABC system. Upon his request, the controller at Demski Company has compiled the following
information for analysis
Demski manufactures two types of products, Ace and Bex, for which the following information
available:
Cost Pool
Factory
overhead costs Activity cost driver
Expected
activity level
Machine setup $ Setup hours
Inspection Inspection hours
Power Kilowatt hours
Supervision Direct labor hours
Total overhead cost $
Ace Bex
Units produced and sold
Direct materials $ $
Direct labor costs $
Direct labor hours in P
Direct labor hours in P
Machine setup hours
Inspection hours
Power kilowatt hours
ACCT Semester Portfolio Question
Required:
Determine the unit cost for each of the two products using the twostage allocation
method. Round calculations to decimal places.
Determine the unit cost for each of the two products using the proposed ABC system.
Compare the unit manufacturing costs for product Ace and product Bex computed in
requirements and
a Why do two the cost systems differ in their total cost for each product?
b Why might these differences be important to the Demski Company?
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