Question

Tulum Company is considering the adoption of an activity-based costing (ABC) system because the managers suspect that their traditional costing system distorts the product costs. This company produces and sells two products M408 and N527. Their traditional costing system uses direct labor cost as the allocation base for manufacturing overhead cost. The production managers decided that the major activities are Machine setups, Special Processing, General factory, and Customer Relations and determined the costs for each activity. All Customer Relations costs are classified as selling and admin expenses. They also identified how many setups, MHs, and DLHs each product requires. Product M408 N527 Price $150 $270 Direct Material $44 $72 DLHs/unit 1.0 2.0 Units 2,000 1,000. Activity Cost Pool Cost Driver or Activity Measure Estimated OH cost Machine setup # of setups $46,200 Special processing MHS $55,000 General factory DLHs $37,500 Customer Relations on 5 customers) # of customers $20,000. Activity Measure M408 N527 # of setups 60 120 Machine hours 8,000 12,000. Relative to the traditional costing system, the product cost for N527: Answer: is _(lower or higher) under the ABC system by (41.27 or 13.2)

          Tulum Company is considering the adoption of an activity-based costing (ABC) system because the managers suspect that their traditional costing system distorts the product costs. This company produces and sells two products M408 and N527. Their traditional costing system uses direct labor cost as the allocation base for manufacturing overhead cost. The production managers decided that the major activities are Machine setups, Special Processing, General factory, and Customer Relations and determined the costs for each activity. All Customer Relations costs are classified as selling and admin expenses. They also identified how many setups, MHs, and DLHs each product requires. 

Product M408 N527 
Price $150 $270 
Direct Material $44 $72 
DLHs/unit 1.0 2.0 
Units 2,000 1,000. 

Activity Cost Pool Cost Driver or Activity Measure Estimated OH cost 
Machine setup # of setups $46,200 
Special processing MHS $55,000 
General factory DLHs $37,500 
Customer Relations on 5 customers) # of customers $20,000. 

Activity Measure 
M408 N527 
# of setups 60 120 
Machine hours 8,000 12,000. 

Relative to the traditional costing system, the product cost for N527: 
Answer: is _____(lower or higher) 
under the ABC system by ____ (41.27 or 13.2)

Added by Justin M.

Question

Please give Ace some feedback