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Hayden, Inc. produces two different products, Product A and Product B. Hayden uses a traditional volume-based costing system in which direct labor hours are
Hayden, Inc. produces two different products, Product A and Product B. Hayden uses a traditional volume-based costing system in which direct labor hours are the allocation base. Hayden is considering switching to an ABC system by splitting its manufacturing overhead cost of $1,800,000 across three activities: Engineering, Manufacturing, and Inspection. Under the traditional volume-based costing system, the predetermined overhead rate is $2.50/direct labor hour. Under the ABC system, the rate for each activity and usage of the activity drivers are as follows: Activity Rate Usage by Product A Usage by Product B Engineering (Engineering Hours) $ 100/hour Manufacturing (Direct Labor Hours) Inspection (Batches) $1.00 $120 2,200 500,000 3,900 9,000 500,000 1,800 Required: a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system. Indirect Manufacturing Costs b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system. Indirect Manufacturing Costs c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system. Indirect Manufacturing Costs
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