The management of Pacific Wellness Centre, a health food company, recently wants to analyze the cost of two of its famous customized products. The customization is not so much on the content but rather on the packaging as some of the firms wants their firm’s logo on the package. In analyzing these products, the management accountant has identified the following data for a typical month in a year.

Activity/Resources	Cost-Driver Base	Activity Cost in a Typical Month	Activity Volume in a Typical Month
1. Unit level 1.1 Acquired and use material for Fruity Bar	Number of units produced	$60,000	1,000,000 units
1.2 Acquired and use direct labor for Fruity Bar	Number of direct-labor hours worked	20,000	2,000 direct labor hours
1.3 Acquire and use material for Energy Bar	Number of units produced	80,000	800,000 units
1.4 Acquire and use direct labor for Energy Bar	Number of direct-labor hours worked	30,000	2,000 direct labor hours
2. Batch Level 2.1	Number of batches	30,000	100 batches
3. Product Level 3.1 Provide product-level advertising	Number of promotions	100,000	100 promotions
3.2 Provide product-level records	Number of products	20,000	2 products
4. Customer Level 4.1 Take customer product orders	Number of customer orders	40,000	2,000 customer orders
4.2 Deal with customer complaints	Number of complaints	20,000	1,000 complaints
5. Facility Level 5.1 Supervise direct labor	Amount of direct-labor costs	10,000	$50,000 for activities 1.2 and 1.4 (supervision costs = 20% of direct labor costs.)
5.2 Use main building	Number of square feet	40,000	10,000 square feet

Recently, the company’s management team attended a presentation on Activity Based costing system and wants to compute the total cost and unit cost of two of its major customized products that has the following activities in the month of August:

	Fruity Bar	Energy Bar
1.1 and 1.3 Material	800,000 units	900,000 units
1.2 and 1.4 Direct labor	1,600 hours	2,100 hours
2.1 Quality control – batches	50 batches	40 batches
3.1 Advertising projects – promotions	50 promotions	40 promotions
3.2 Products recorded	1 product	1 product
4.1 Customer orders	800 customer orders	900 customer orders
4.2 Customer complaints	600 complaints	300 complaints
5.1 Direct-labor supervision	$16,000	$31,500
5.2 Main building use	6,000 sq. ft.	3,000 sq. ft.

Required

Do the units costs of the two products computed under ABC and traditional costing systems differ significantly? If so, what causes the differences?

Answer rating: 100% (QA)

Answer Yes the unit costs of the two products computed under ABC and traditional costing systems differ significantly Following causes the differences In the field of accounting activitybased costing ... View the full answer