BBB Company produces multiple products. The company is currently using a traditional system. Total overhead is projected to amount to $2,300,000. The company uses machine hours as its allocation base. BBB expects 200,000 machine hours to be worked plant wide. However, the firm is considering changing to an ABC System. Here, overhead will be separated into four cost pools: Machining, Processing, Setup, and Assembling. Machining, Processing, Setup, and Assembling costs are projected to amount to $800,000, $485,000, $500,000, and $515,000 respectively. Plantwide machine hours are expected to amount to 200,000. The number of processing hours is expected to amount to 2,850,000. The number of production runs is expected to amount to 5000, and direct labor hours will amount to 400,000.
Listed below is actual cost information related to two products:
Product Y Product Z
Direct Materials $150,000 $210,000
Direct Labor $170,000 $260,000
Machine Hours 1,200 hours 11,000 hours
Processing Hours 600 hours 200 hours
Production Runs 12 runs 72 runs
Direct Labor Hours 2,500 hours 5,000 hours
Units Produced 500 units 800 units
A) Under the traditional system, compute the predetermined overhead rate.
B) Under the traditional system, apply overhead to both products.
C) Under the traditional system, compute the unit cost.
D) Under the ABC Method, calculate the appropriate activity rates
E) Apply overhead to both products using the ABC Method.
F) Compute unit cost for each product under the ABC Method.