Question

Faz, Inc., manufactures and sells two products: Product X0 and Product W7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

	Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
Product X0	2,000	4	8,000
Product W7	440	3	1,320
Total direct labor-hours			9,320

The direct labor rate is $23.60 per DLH. The direct materials cost per unit is $148.50 for Product X0 and $130 for Product W7.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product X0	Product W7	Total
Labor-related	DLHs	$	276,078	8,000	1,320	9,320
Production orders	orders		19,348	540	740	1,280
Order size	MHs		241,614	4,040	4,140	8,180
		$	537,040

Which of the following statements concerning the unit product cost of Product W7 is true? (Round your intermediate calculations to 2 decimal places.)

rev: 03_25_2018_QC_CS-119201

Multiple Choice

• The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $219.37.

• The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $41.39.

• The unit product cost of Product W7 under traditional costing is greater than its unit product cost under activity-based costing by $41.39.

• The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $219.37.

Answer 1

Traditional costing:
Estimated overhead cost	537040
Divide by Total Direct Labor-Hours	9320
Traditional costing overhead rate	57.62
Product W7 Overhead per unit	172.86	=57.62*3
Activity based costing:
Activity Cost Pools	Activity rate
Labor-related	29.62	=276078/9320
Production orders	15.12	=19348/1280
Order size	29.54	=241614/8180
Activity Cost Pools	Product W7
Labor-related	39098.4	=1320*29.62
Production orders	11188.8	=740*15.12
Order size	122295.6	=4140*29.54
Total overhead	172582.8
Divide by Units	440
Product W7 Overhead per unit	392.23
Difference under both methods	219.37	=392.23-172.86

The unit product cost of Product W7 under traditional costing is less than its unit product cost under activity-based costing by $219.37.

Option D is correct