Exercise: Costing Methods in Manufacturing

ABC company produces two types of wooden tables: Simple Tables and Luxury Tables. For the current month, the following data has been gathered:

Direct Materials:

Simple Tables: $$20,000$

Luxury Tables: $$50,000$

Direct Labor $($at $$20$ per hour$)$:

Simple Tables: $500$ hours

Luxury Tables: $1,500$ hours

Manufacturing Overhead Costs $($Total$)$: $$70,000$

Overhead Allocation Bases $($Traditional Method$)$:

Overhead is allocated based on direct labor hours.

Activities for ABC $($Activity$-$Based Costing$)$:

Machine Setup $($Number of Setups: Simple Tables $=20,$ Luxury Tables $=30$; Total Cost $=$$$10,000$

Material Handling $($Tons of Material: Simple Tables $=10,$ Luxury Tables $=40$; Total Cost $=$$$20,000$

Quality Inspection $($Number of Inspections: Simple Tables $=15,$ Luxury Tables $=25$; Total Cost $=$$$40,000)$

Total Units Produced:

Simple Tables: $100$ units

Luxury Tables: $50$ units

Units Sold:

Simple Tables: $80$ units

Luxury Tables: $40$ units

Required:

Calculate the COGM and COGS for both Simple Tables and Luxury Tables using the traditional costing method.

Calculate the COGM and COGS for both products using Activity$-$Based Costing $($ABC$).$

Explain why the results differ between the two methods.