The manufacturing division of an electronics company uses activity-based costing. The company has identified three activities and the related cost drivers for indirect production costs.
Activity Cost Driver
Activity 1 Direct materials cost
Activity 2 Direct labor cost
Activity 3 Kilowatt hours
Three types of products are produced. Direct costs and cost-driver activity for each product for a month are as follows:
_________________________Product A__________Product B__________Product C
Direct materials cost................$75,000..................$50,000................$125,000
Direct labor cost......................$6,000....................$1,000..................$3,000
Direct labor hours......................1,000........................500...................1,500
Kilowatt hours.......................150,000..................200,000................150,000
Indirect production costs for the month are as follows:
Activity 1 $12,000
Activity 2 20,000
Activity 3 16,000
Total $48,000
A) Compute the indirect production costs allocated to each product using the ABC system.
B) Compute the indirect production costs allocated to each product using a traditional costing system. Assume indirect production costs are allocated to each product using the cost driver: direct labor hours.