Describe the production characteristics (for example, high-volume, specialty, etc.) of the three products manufactured by Hydraulic Hoses, Inc. in our case study.

Describe the characteristics of products which would suggest it would be better to use ABC as an indirect cost allocation method over a traditional method such as direct labor hours.

Case Study:

Hydraulic Hoses, Inc. produces specialized industrial hoses for application such as high-pressure hydraulics and the transference of highly corrosive materials. The company recently implemented and ABC system for three of its products and is interested in evaluating its effectiveness before converting to an ABC system for thress of its products and is interested in evaulating its effectiveness before converting to an ABC system for all of its products. To perform this evaluation the company has compiled data for the three products using both the traditional system and the new ABC syste. The traditional system uses a single driver (direct materials costs). The ABC system uses a variety of cost drivers related to the activities used to produce the metal products. The three products involved in the trial run of the ABC system were D-13, K-17, and R-23. The following data relate to these products.

Product Selling Price Per Unit Units produced Total Costs Allocated Traditonal Costing Cost per Unit Traditonal Costing Total Cost allocated ABC Cost per Unit ABC

D-13 $14.65 250,000 $2,100,000 $8.40 $2,000,000 $8.00

K-17 15.60 140,000 1,280,000 9.14 1,235,000 8.82

R-23 18.50 20,000 214,500 10.73 369,500 17.98

Total 3,594,500 3,594,500