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Lily Company currently uses traditional costing procedures, applying $612,880 of overhead to products Alpha and Gamma on the basis of direct-labor hours. The company is
Lily Company currently uses traditional costing procedures, applying $612,880 of overhead to products Alpha and Gamma on the basis of direct-labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PCs) as cost drivers. Data on the cost pools and respective driver volumes follow. Product Pool No. 1 (Driver: DLH) Alpha 1,900 Gamma Pool Cost 1,100 $186,000 The overhead cost allocated to Gamma by using activity-based costing procedures would be: $68,200 $224,723 None of these $224,990 $387,890 Pool No. 2 (Driver: SU) 12 50 $124,000 Pool No. 3. (Driver: PC) 1,950 450 $302,880
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