Biology Forums - Study Force

Cocoa Pet Corporation manufactures two models of grooming stations, a standard and a deluxe model.

The following activity and cost information has been compiled:

      Number of   Number of   Number of
   Product   Setups   Components   Direct labour Hours
Standard   3   30   650
Deluxe   7   50   150

Indirect costs:    $20,000   $60,000

Required:
Assume a traditional (simple) costing system applies the $80,000 of overhead costs based on direct labour hours.
a.   What is the total amount of overhead costs assigned to the standard model?
b.   What is the total amount of overhead costs assigned to the deluxe model?
Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.
c.   What is the total amount of indirect costs assigned to the standard model?
d.   What is the total amount of indirect costs assigned to the deluxe model?
e.   Explain the difference between the costs obtained from the traditional costing system and the ABC system. Which system provides a better estimate of costs? Why?

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