Traditional vs Activity Based Costing ABC uses more than one predetermined overhead rate. Traditional uses only one. ABC can produce more precise measures of product cost and thereby better management decisions Only matters if you have more than one product and the product types use resources di differently Day 1 Activity Based Costing Homework company produces two products: flanges and couplings Data on the two products follows: langes Couplings Our Activitles Direct Labor Hours per UUnit Direct Labor Rate Annual Production 0.80 hours 0.40 hours 15 per 15 per hour 10,000 units 40,000 units Flanges are more complicated related to Overhead to manufacture and require special processing. The Company has identified the following activities and Activities Machine Setups ( setups) Special Processing ( Machise hours) Flanges Couplings Total 300 100 400 setups coSAS 5,000 5,000 machine estma-fed tote Other overhead (assigned on the basis of a Labor hours) 8,000 16,000 24,000 labor hours 1. Compute Overbead application rates for the two products for each of the activities listed above, assuming the costs for those activities are as appears in the following table Activities and Costs Predetermined Overhead Rates Machine Setups $72,000 Special Processing $ 200,000 Other overbead $ 816,000 Chapter 7, Page 6 Apply Overhead to the two product lines using the Activity Based Costs computed (above) in part Activities Flanges Couplings Machine Setups Special Processing Machine Hours Other overhead Total Overhead costs assigned to /40,000 units /10,000 units MDH COS+ 2. What is the unit cost of the standard and executive products under activity based costing? Couplings s 18 Flanges Manufacturing Input S 32 Direct Material per unit Direct Labor $ per unit MOH per unit Total