Question

Welskopf, Inc., manufactures and sells two products Product E6 and Product 32. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below ed Direct Labor- Hours Per Unit 5.0 7.0 Expected Production 600 900 Total Direct Labor- Hours 3,000 6,300 9,300 Product E6 Product J2 Total direct labor-hours The direct labor rate is $18.10 per DLH. The direct materials cost per unit for each product is given below: Direct Materials Cost per Unit $176.50 $200.00 Product E6 Product J2 The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Activity Cost Pools Labor-related Product testing Order size Activity Measures DLHS tests MHS Estimated Expected Activity Overhead Cost Product E6 Product J2 Total $430,032 3,000 6,300 9,300 68,368 300 500 800 478,962 5,000 4,900 9,900 $977,362

Answer 1

Answer: The unit product cost of Product J2 under traditional costing is greater than its unit product cost under activity based costing by $ 101.07

Traditional costing :

Predetermined overhead rate = $ 977,362 / 9,300 DLH = $ 105.09 per DLH

	Product E6	Product J2
Direct materials	$ 105,900	$ 180,000
Direct labor	54,000	113,400
Overhead	315,270	662,067
Total Product Cost	$ 475,170	$ 955,467
Expected units	600	900
Unit Produt Cost	$ 791.95	$ 1,061.63

Activity based costing:

	Product E6	Product J2
Direct materials	$ 105,900	$ 180,000
Direct labor	54,000	113,400
Overhead
Labor related	138,720	291,312
Product testing	25,638	42,730
Order Size	241,900	237,062
Total Product Cost	566,158	864,504
Expected production in units	600	900
Unit Product Cost	$ 943.60	$ 960.56

	Product E6	Product J2
Unit Product Cost ( Traditional Costing )	$ 791.95	$ 1,061.63
Unit Product Cost ( ABC )	943.60	960.56
Difference	(151.65)	$ 101.07