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WHAT IS THE DIFFERENCE OF THE SELLING PRICE IN USING TRADITIONAL SYSTEM AND ACTIVITY-BASED COSTING OF PRODUCT A? SANGWOO CO. manufactures variety of products. In
WHAT IS THE DIFFERENCE OF THE SELLING PRICE IN USING TRADITIONAL SYSTEM AND ACTIVITY-BASED COSTING OF PRODUCT A?
SANGWOO CO. manufactures variety of products. In the past, SANGWOO Co. has been using traditional costing system in which the predetermined overhead rate was 150% of direct labor. Selling prices had been set my multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, SANGWOO CO. has decided to switch to an activity-based costing system for manufacturing overhead cost using three activity cost pools. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for the next year are as follows: Activity Cost Pool Machine Set-up Quality Control Other Overhead 400 1,500 30,000 Estimated Activity Number of setups Estimated Overhead Cost P150,000 Number of inspections Machine hours 180,000 480,000 Information (on a per units basis) related to the three popular products at SANGWOO CO. are as follows: PRODUCT A Direct Material cost 400 Direct labor cost 810 Number of set ups 2 Number of inspections 1 Number of machine hours 4 PRODUCT B 540 600 3 3 8 PRODUCT C 310 220 1 1 10 Compute for the difference of the selling price in using traditional system and activity-based costing of product A.
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