Q

The following example illustrates how traditional cost accounting techniques could result in a misleading and inequitable division of costs between low-volume and high-volume products, and demonstrates that ABC may provide a more meaningful allocation of costs. Suppose that Cooplan manufactures four products, W, X, Y and Z. The direct labour cost per hour is $5. Other output and cost data for the period just ended are as follows. Number of production runs in the period Material cost Direct labour hours per unit Machine hours per unit Output units per unit 3X>N 10 10 100 100 $ $ 20 80 20 80 2 2 5 5 14 1 3 1 3 Y 1 3 1 3 WW Blo Overhead costs Short-run variable costs Set-up costs Required 3,080 10,920 Expediting and scheduling costs Materials handling costs $ 9,100 7,700 Prepare unit costs for each product using traditional costing and ABC