Question 2: Job Costing vs. ABC Costing

Wyoming Manufacturing Limited has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs). The company has two products, Widgets and Trinkets, about which it has provided the following data:

	Widgets	Trinkets
Direct Materials per unit	$11.10	$62.50
Direct Labour per unit	$2.00	$11.00
Direct labour hours per unit	0.20	1.10
Annual production	45,000	10,000

The firms estimated total manufacturing overhead for the year is $1,521,960 and the firm's estimated total direct labour-hours for the year is 20,000.

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	Widgets	Trinkets	Total
Supporting direct labour	9,000	11,000	20,000
Setting up machines	814	374	1,188
Parts administration	924	1,012	1,936

Activities & Drivers	Estimated MOH cost
Supporting direct labour (DLH)	$352,000
Setting up machines (setups)	$201,960
Parts Administration (part types)	$968,000
Total	$1,521,9

Required:

1. Determine the unit product cost of each of the company's two products under the traditional costing system. (6 marks)

2. Determine the unit product cost of each of the company's two products under activity-based costing system. (12 marks)