ABC Enterprises manufactures and distributes three products: A, B, and C. Over the past few years, ABC has gradually automated its operations. As a result, total direct labor hours have substantially declined, while total manufacturing overhead costs have significantly increased. Because of these changes, ABC wants to evaluate its product costs using Activity-Based Costing procedures. The following information has been gathered from the company's internal records and budgetary system.
A B C
Units produced and sold 5000 2000 1000
Total direct material cost $90,000 $50,000 $40,000
Total direct labor hours 3600 2000 800
Direct labor rate per hour $9.00
Total manufacturing overhead $290,000
Overhead:
Number of Events Activity Cost Driver Total cost A B C
Production no. of parts per unit $150,000 20 32 68
Set-up no. of production runs $90,000 8 5 3
Quality control no. of inspection points $50,000 3 6 11
Required:
a. Calculate product costs for products A, B, and C using a traditional costing approach using direct labor hours to assign overhead costs to products.
b. Calculate product costs for products A, B, and C using Activity-Based Costing to assign overhead costs to products.