Yaqeen Manufacturing is thinking of using Activity based Costing system and has identifies four activities. The four activities, cost drivers, annual activity level, and expected overhead costs for each activity for next year are listed below.
Annual Cost-Driver
Activity Cost Driver Activity Level Expected FOH
Maintenance Machine hours 40,000 $300,000
Materials Handling Material moves 8,000 150,000
Setups Setups 10,000 200,000
Inspection Quality inspections 15,625 250,000
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours. 100,000 direct labor hours are budgeted for next year.
Estimates for product AS1 are as follows:
Direct materials $20,000
Direct labor (1,000 hours) $15,000
Number of materials moves 20
Number of inspections 25
Number of setups 5
Number of machine hours 750
What is the expected total cost of product AS1 if traditional cost accounting is used?What is the expected total cost of product AS1 if activity-based costing is used?
