Harwell, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation basis. Harwell produces two different products: Product A, which uses 40,000 direct labor hours, and Product B, which uses 60,000 direct labor hours. Harwell is considering switching to an ABC system by dividing its $400,000 manufacturing overhead cost into three activities: setup, production, and finishing. Under the traditional volume-based costing system, the default overhead rate is $4.00/direct labor hour. Under the ABC system, the cost of each activity and the proportion of activity drivers used by each product are as follows:

	Total cost		Proportion used by Product A		Proportion used by Product B
Design (Engineering Hours)	ps	50,000	30	%	70	%
Production (direct labor hours)	ps	300.000	40	%	60	%
Inspection (lots)	ps	50,000	20	%	80	%

Required:

1. a. Calculate the manufacturing overhead costs assigned to Product A under the traditional costing system.
   b. Calculate the manufacturing overhead costs assigned to Product B under the traditional costing system.
   C. Calculate the manufacturing overhead costs assigned to Product A under the ABC system.
   d. Calculate the manufacturing overhead costs assigned to Product B under the ABC system.
   e. Which product is undercost and which is overcost in volume-based costing compared to ABC?

Answer rating: 100% (QA)

a Calculate the manufacturing overhead costs assigned to Product A under the traditional costing system Under the traditional costing system the manuf... View the full answer