Question

department. The production department is estimated to require 4,000 direct labor hours. The total Indirect labor is budgeted to be $704,000 Direct Number of 1,100 2,000 80,000 Total,6001.000 160,000 allocation base.

Answer 1

Question a

Traditional Costing System
Particulars	Amount
Budgeted Indirect Labour Cost	704000
(/) Budgeted Base (Labour Hrs)	4000
Indirect Labour Cost per Labour Hr	176
Computation of Indirect Labour Cost per unit
Particulars	Cell Phones	Tablet PCs
Direct Labour Hours	2000	2000
Indirect Labour Cost per Labour Hr	176	176
Total Indirect Labour Cost	352000	352000
Total units	80000	80000
Indirect Labour Cost per unit	4.4	4.4

Question b

Activity Based Costing System
Particulars	Setup	Production Support
Activity Cost	281600	422400
	(704000*40%)	(704000*60%)
Cost Driver	1600 setups	4000 labour hr
Cost Driver Rate	176	105.6
	per setup	per Hr
Question c
Computation of Indirect Labour Cost per unit	Cell phones	Tablet PCs
Production Run	88000	193600
	(500*176)	(1100*176)
Production Support	211200	211200
	(2000*105.6)	(2000*105.6)
Total	299200	404800
Total units	80000	80000
Indirect Labour Cost per unit	3.74	5.06

Question d

The difference between per unit cost in Traditional Costing System and ABC system is different because, in Traditional Costing we have considered only one factor to determine the per unit cost i.e., direct labour hours, which is equal for both products. So the per unit cost of both products is also equal. But in ABC system we have considered two factors which is production setup and production support. The number of production setups for both the products are different even though the direct labour used for production support is same. This is the reason why there is a difference in per unit cost.

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