The wireless phone manufacturing division of a Spanish consumer electronics company uses activity-based costing. For simplicity, assume that its accountants have identified only the following three activities and related cost drivers for indirect production costs:

Three types of mobile phone are produced: Senior, Basic and Deluxe. Direct costs and cost-driver activity for each product for a recent month are as follows:

1. Compute the indirect production costs allocated to each product with the ABC system.
2. Suppose all indirect production costs had been allocated to products in proportion to their direct-labour costs. Compute the indirect production costs allocated to each product.
3. In which product costs, those in requirement 1 or those in requirement 2, do you have the most confidence? Why?

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Activity Materials handling Engineering Power Cost driver Direct-materials cost Engineering change notices Kilowatt hours