A new product Zico was recently introduced by Philadelphia Co., in order to complement its other products, Novo and Domo. The accountant used to allocate the indirect cost according to the units produced. With the recent addition of an expanded computer system, Sonata would like to investigate the possibility of implementing ABC. Before making a final decision, management has come to you for advice. You collected the following information regarding manufacturing overhead: Table (1) Mfg. Overhead Mfg. Overhead Costs Allocation bases Set-up $ 40,000 Number of set-ups Ordering materials $ 45,000 Number of material orders Handling materials $ 9,000 Number of times material was handled Inspection $ 21,000 Number of inspection hours $115,000 Table (2) Activity Products Zico Novo Domo Total Number of set-ups 5 20 55 Total Number of material orders 1 2 7 Total Number of times material was handled 1 2 17 Total Number of inspection hours 3 2 10 Number of units produced 6,000 3,000 1,000 Required: 1. Calculate the manufacturing overhead allocated for each product under ABC method. 2. Calculate the manufacturing overhead allocated for each product under the traditional costing method.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 35P: The management of Wheeler Company has decided to develop cost formulas for its major overhead...

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A new product Zico was recently introduced by Philadelphia Co., in order to complement its other products, Novo and Domo. The accountant used to allocate the indirect cost according to the units produced. With the recent addition of an expanded computer system, Sonata would like to investigate the possibility of implementing ABC. Before making a final decision, management has come to you for advice. You collected the following information regarding manufacturing overhead:

Table (1)
Mfg. Overhead	Mfg. Overhead Costs	Allocation bases
Set-up	$ 40,000	Number of set-ups
Ordering materials	$ 45,000	Number of material orders
Handling materials	$ 9,000	Number of times material was handled
Inspection	$ 21,000	Number of inspection hours
	$115,000

Table (2)
Activity	Products
	Zico	Novo	Domo
Total Number of set-ups	5	20	55
Total Number of material orders	1	2	7
Total Number of times material was handled	1	2	17
Total Number of inspection hours	3	2	10
Number of units produced	6,000	3,000	1,000

Required:

1. Calculate the manufacturing overhead allocated for each product under ABC method.

2. Calculate the manufacturing overhead allocated for each product under the traditional costing method.

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