Question

Use the information in Exercise 5-6B to complete the following requirements.
In Exercise 5-6B, Fenya Industries produces two surge protectors: K2761 with six outlets and D3354 with eight outlets and two telephone line connections. Because of these product differences, the company plans to use activity-based costing to allocate overhead costs. The company has identified four activity pools. Relevant information follows.


Expected activity for each product follows.


Assume that before shifting to activity-based costing, Fenya Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two surge protectors follow.
Direct Labor Hours
K2761 ......... 32,000
D3354 ......... 18,000
Total ......... 50,000
Required
a. Compute the amount of overhead cost allocated to each type of surge protector when using direct labor hours as the allocation base.
b. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.
c. Explain why the per-unit overhead cost is lower for the higher-volume product when usingABC.


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  • CreatedFebruary 07, 2014
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