Harrison Company makes two products and uses a conventional costing

Harrison Company makes two products and uses a conventional costing system in which a single plantwide, predetermined overhead rate is computed based on direct labour-hours. These products are customized to some degree for specific customers. Data for the two products for the upcoming year follow:

Parcel Rascon Direct materials cost per unit $23.00 $29.50 Direct labour cost per unit $18.00 $4.50 Direct labour-hours


Required:

1. The company’s manufacturing overhead costs for the year are expected to be $864,000. Using the company’s traditional costing system, compute the unit product costs for the two products.

2. Management is considering an ABC system in which half of the overhead would continue to be allocated on the basis of direct labour-hours and half would be allocated on the basis of engineering design time. This time is expected to be distributed as follows during the upcoming year:

Rascon Parcel Total Engineering design time (in hours) 6,000 3,000 9,000


Compute the unit product costs for the two products using the proposed ABC system.

3. Explain why the product costs differ between the two systems.

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