Question

Rondeau, Inc., manufactures and sells two products: Product V9 and Product M6. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected Production 700 Direct Labor- Hours Per Unit 13.0 10.0 Product V9 Product M6 Total direct labor-hours Total Direct Labor-Hours 9,100 8,000 17,100 800 The direct labor rate is $27.80 per DLH. The direct materials cost per unit for each product is given below: Direct Materials Cost per Unit $293.60 $186.80 Product V9 Product M6 The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Expected Activity Activity Cost Pools Labor-related Product testing Order size Activity Measures DLHS Tests MHS Estimated Overhead Cost $104,656 77,608 404,000 $586, 264 Product V9 Product M6 9,100 8,000 1,200 5,900 5,200 Total 17,100 2,800 11,100 Required: Calculate the difference between the unit product costs under the traditional costing method and the activity-based costing system for each of the two products. (Round your intermediate calculations and final answers to 2 decimal places. Enter your answers as positive values.) Product V9 Product M6 Traditional unit product cost ABC unit product cost Difference

Answer 1

Answer

	Product G8	Product O0
Tradiional Based	$         1,100.70	$              807.64
ABC	$         1,088.85	$              818.01
Difference	$               11.85	$               (10.37)

Calculations:

Traditional Costing
	Product G8	Product O0
Direct material	$             293.60	$              186.80
Direct labor	$             361.40	$              278.00
Overheads	$             445.70	$              342.84
Total	$         1,100.70	$              807.64
ABC
	Product G8	Product O0
Direct material	$             293.60	$              186.80
Direct labor	$             361.40	$              278.00
Overheads*	$             433.85	$              353.21
Total	$         1,088.85	$              818.01
Difference	$               11.85	$               (10.37)

*

Activity cost pool	Overhead rates	Product G8 activity	Product O0 activity	Overheads for Product G8	Overheads for Product O0
labor related	$                 6.12	$                9,100.00	$                8,000.00	$                          55,694.13	$                          48,961.87
Machine Setups	$               27.72	$                1,200.00	$                1,600.00	$                          33,260.57	$                          44,347.43
Order zize	$               36.40	$                5,900.00	$                5,200.00	$                        214,738.74	$                        189,261.26
Total				$                        303,693.44	$                        282,570.56
Per unit				$                                433.85	$                                353.21

In case of any doubt, please comment.