Job Costing vs. ABC Costing

Answer questions 2 and 3 based on the scenario of Shoe Express Inc.:

Shoe Express, Inc., manufactures two types of shoes, B-Ball and Marathon. The B-Ball shoe has a complex design that uses gel-filled compartments to provide support. The Marathon shoe is simpler to manufacture and uses conventional foam padding. Following is the data provided about these two products:

Marathon shoe

B-Ball shoe

Direct Materials per unit

$14

$34

Direct Labour per unit

$5.00

$17.00

Direct labour hours per unit

0.80

2.0

Annual production

20,000

10,000

The company has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour cost. The firms estimated total manufacturing overhead for the year is $453,960.

2. Determine the unit product cost of each of the company's two products under the traditional costing system (25 marks)

The company is considering using activity-based costing to determine its unit product costs. Data for this proposed activity-based costing system appear below:

Activities

Activity level Marathon shoe

Activity level B-Ball shoe

Total

Quality Control

20

40

60

Advertising

48

12

60

Activities & Drivers

Estimated MOH cost

Quality Control

$252,000

Advertising

$201,960

Total

$453,960