Kowalski Company manufactures a number of specialized machine parts. Part Compo-24 uses $35 of direct materials and $15 of direct labor per unit. Kowalski”s estimated manufacturing overhead is as follows.
Materials handling |
$150,000 |
Machining |
180,000 |
Factory supervision |
138,000 |
Total |
$468,000 |
Overhead is applied based on direct labor costs, which were estimated at $200,000.
Kowalski is considering adopting activity-based costing. The cost drivers are estimated at:
Activity |
Cost Driver |
Expected Use |
Materials handling |
Weight of materials |
50,000 pounds |
Machining |
Machine horns |
20,000 hours |
Factory supervision |
Direct labor hours |
12,000 hours |
Instructions
(a)Compute the cost of 1,000 units of Compo-24 using the current traditional costing system.
(b)Compute the cost of 1,000 units of Compo-24 using the proposed activity-based costing system. Assume the 1,000 units use 2,500 pounds of materials, 500 machine hours, and 1,000 direct labor hours.