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Problem 4-16 Contrasting ABC and Conventional Product Costs (L04-2, LO4-3, L04-4) (The following information applies to the questions displayed below) For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become Increasingly popular. The LEC 90 is a more complex product, requiring 0.60 hours of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.20 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company's New LEC 90. profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Direct material and direct labor costs per unit are as follows: Direct materials Direct labor (0.20 hours and 0.60 hours LEC 40 $26.00 $ 3.00 LEC 90 $42.00 $ 9.00 $15.00 per hour) Management estimates that the company will incur $848,000 in manufacturing overhead costs during the current year and 80,000 units of the LEC 40 and 40,000 units of the LEC 90 will be produced and sold.

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Answer 1

Determine the Activity rate for each activty pool Activity rate= Budgeted Cost total Activty Cost pool/ Activity Maintaining Inventory 238000 1700 140 Processing purchase orderes 140000 2000 70 Quality Control 27500 2750 Machine related 442500 10000 44 10 Answer Maintaining Inventory Processing purchase orderes Quality Control Machine related 140.00 Per Part Tyape 70.00 Per Order 10.00 Per Test 44.25 Per MH