Question 4:

Use an activity-based costing system to calculate new costs and profitability of each of the 4 products (Schedule 1) under the system.

To complete the design of the ABC system you have to make decisions on:

-- Which cost driver should be used for allocating the costs of each activity to each of the products? AND should you charge the design and engineering support and marketing expenses to products or treat them as firm-wide costs?

Related Info:

Schedules 4 & 5 present labor hours and machine hours per unit for each product. Schedule 6 lists the number of batches for each product. Schedule 1 lists the number of units for each product. (**so far on my own I have concluded that Exhibit 4 under the activity-based costing has the allocation bases to be used for some of the items).

Schedules 7 & 8 present sales personnel time distribution, and design and engineering support time distribution. If you decide to treat design and engineering and marketing as product costs, use the Allocation Menu to select the cost drivers and charge the cost to the products.

(Descriptions of activities within each of the departments in each plant given in Exhibit 1. You also decided to create plant-sustaining cost pool to allocate factory costs decided could not accurately be allocated to the other departments. Provided is an analysis and description of the costs in each cost pool (Exhibit 2) and allocated costs of the 8 cost pools (Schedule 9) to the different departments and to the plant sustaining cost pool.)

**Graphs and info located below