1. Epsilon Corporation

Scenario: Activity-Based Costing (ABC)

Data: Epsilon Corporation manufactures two products: Product X and Product Y. The following information is available:

• Product X: Direct materials $20,000, Direct labor $10,000, Overhead $5,000
• Product Y: Direct materials $15,000, Direct labor $12,000, Overhead $8,000
• Total overhead costs: $20,000

Requirements:

1. Calculate the total cost per unit for Product X and Product Y using ABC.
2. Determine the cost allocation rate for overhead based on activity-based costing.
3. Discuss the benefits of activity-based costing over traditional costing methods.
4. Analyze how activity-based costing improves cost accuracy for Epsilon Corporation.
5. Evaluate the profitability of each product using activity-based costing data.
6. Recommend pricing strategies for Epsilon Corporation based on ABC analysis.