Hi,

Using the information below, I am trying to ascertain traditional costing vs ABC costing for overhead cost allocation and which method is best. For this example, could you please assist?

Appendix II Budgeted cost allocations Notes Direct costs Overhead Employee salaries and wages: Analyst salaries (13,000 hours @ $25) Sales representative commissions Call centre supervisor salary GAON- $ 325,000 Call centre wages (44,000 hours @ $15) 660,000 140,000 $100,000 Other general and administrative salaries 350,000 Telephone costs 180,000 Rent, heat, and lights 75,000 Depreciation - office furniture and equipment 100,000 Miscellaneous office expenses 105,000 $1, 125,000 $910,000 Allocate overhead based on analyst hours 13,000 Overhead rate per analyst hour $70 Notes: 1. Direct wages are traced to individual jobs. 2. Commissions are based on 40% of the pre-tax profit of the jobs. 3. The call centre supervisor manages the work of the survey callers and is paid a flat salary. 4. Other general and administrative salaries include items such as head office salaries. 5. Telephone costs include approximately $20,000 per year for basic local and long- distance telephone services for the office, plus approximately $160,000 per year for the call centre. Analysts incur no specific telephone costs. 6. Rent, heat, and light costs are for the entire office space. Approximately 30% of the space is used by analysts, 50% by the call centre, and 20% by general administration. The call centre space could easily be subleased to another company in the same building that would like to expand. 7. Of the depreciation for office fumiture and equipment, approximately 30% relates to the analysts, 40% to the call centre, and 30% to general administration. Assets used by the call centre could be sold for $1,000. B. Miscellaneous office expenses include items such as office supplies, insurance, and so on. Overhead costs include all costs that are not traced directly to jobs. Overhead is allocated to jobs based on the number of analyst hours, using a predetermined rate based on the annual budget ($70 per hour for the current year). LCI completes 60 surveys a year on average. TrenAppendix I Data for three recent jobs Job A Job B Job C Job data Analyst hours 65 45 4 Analyst salaries (average $25 per hour) $ 1,625 $ 1,125 $ 100 Survey caller hours 0 30 540 Survey caller wages ($15 per hour) $ $ 450 $ 8,100 Job profit Revenue $ 6,000 $ 6,000 $15,000 Direct costs: Analyst salaries (1,625) (1,125) (100) Survey caller wages (450) (8, 100) Overhead allocation ($70 per analyst hour) (4,550 (3,150 (280 Profit before commission (175) 1,275 6,520 Sales commission @ 40% (510) (2,608) Pre-tax profit $ (175) $ 765 $ 3,912 Job A - Analysis of customer preferences: This is representative of a typical analyst job where data is provided by the client and all of LCI's work is analysis focused. Job B - Satisfaction survey with analysis for a client's product in comparison to its competition: LCI collected the data, analyzed the results, and provided the analysis to the client. Job C - Customer preferences survey with no analysis for a food manufacturer: This is a recurring job, in which the client provides the survey questions and performs its own analysis of the data