Question 7.1 ABC can be useful to help organizations control their costs through allocating costs more directly to the activities that cause the cost to be incurred. In order to solidify our understandings of these concepts, I have chosen two short answer questions from the textbook. These questions should help reinforce the discussion we had in our class session. Mannon Companys accountant exclaimed, Our cost accounting system allocates overhead based on direct labour hours, but our overheads cost appear to be more related to setup activities than to the use of direct labour. It seems as though our costing system allocates too much cost to large batches of product and not enough cost to small batches. Explain what she means. Using the table below:

Resource or Activity	Wood Frame	Metal Frame
Direct materials	$600,000	$200,000
Direct Labour	6000 *$25 150,000	3,000*$25 75,000
Material handling	100,000*$0.50 50,000	10,000*$0.50 5,000
Cutting	5,000*$30 150,000	500 *$30 15,000
Assembly	6,000*$20 120,000	3,000 *$20 60,000
Wood Staining	5,000*$22 110,000	0*$22 0
Total	$1,180,000	$355,000
Per Unit	$1,180,000/5000=$236 per unit	$355,000/1,000=$355 Per Unit
B. Product cost per unit, including manufacturing and nonmanufacturing cost: Wood frame = $236 +$10 +$50 = $296 Metal frame = $355 +$15 +$80 =$450