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    iwontgoquietly's Avatar
    iwontgoquietly Posts: 1, Reputation: 1
    New Member
     
    #1

    Oct 17, 2010, 02:05 PM
    ABC vs Traditional costing help
    I have no clue how to set up these problems to find the answer. I looked in my text, I used online tools, even Google, I don't know what else to do and my Prof. is not friendly. Could anybody at least point me in the correct direction?

    Example:

    A company manufactures two products. A and B. The overhead costs consist of setting up machines $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the products is below:

    Direct Labor Hours A 15,000 B 25,000
    Machine Setups A 600 B 400
    Machine Hours A 24,000 B 26,000
    Inspections A 800 B 700

    Overhead applied to product B using traditional costing using direct labor hours is:

    $xxxx?

    The next question is to use ABC (activity based costing) to figure it out. I don't even know the forumlas for them, can anybody help?
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
    Senior Member
     
    #2

    Oct 17, 2010, 09:57 PM

    Traditional method:

    1. Calculate overhead rate
    Total overheads/Total labor hours

    2 Apply overhead rate to Product B
    Labor hours for B x Overhead rate

    ABC method:

    Prepare a table as follows

    Cost pool -- Overheads -----Total Activity ---- Overhead rate

    Remember there are three activities

    Now charge overhead based on activity for product B using rates calculated.

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