Traditional Product Costing versus Activity Based Costing

Assume that Panasonic Company has determined its estimated total manufacturing overhead cost for one of its plants to be $204,000 consisting of the following activity cost pools for the month.

Activity Center Activity Costs Cost Driver Activity Level

Assembly setup $45,000 Setup hours 1,500

Material Handling 15,000 Number of moves 300

Assembly 120,000 Assembly hours 12,000

Maintenance 24,000 Maintenance hours 1,200

Total $204,000

Total direct labor hours used during the month were 8,000. Panasonic produced many different electronic products, including the following two products produced during the current month:

Model X301	Model Z205
Units produced 1000	Units produced 1000
Direct materials cost $15,000	Direct materials cost $15,000
Direct Labor costs $12,500	Direct Labor costs $12,500
Direct Labor hrs 500	Direct Labor hrs 500
Setup hrs 50	Setup hrs 100
Material moves 25	Material moves 50
Assembly Hrs 800	Assembly Hrs 800
Maintenance Hrs 10	Maintenance Hrs 40

A.. Calculate the total cost per-unit cost of each model using direct labor hours to assign manufacturing overhead to products.

B. Calculate the total per-unit cost of each model using activity-based costing to assign manufacturing overhead to products.

C. Comment on the accuracy of the two methods for determining costs.

D. Discuss some of the strategic implications of your answers to the previous requirements.