The cost accountant of Don’t Blame The Kids is considering to
use the ABC system in determining the cost of its products. At
present, the company uses the traditional costing system wherein
factory overhead costs are allocated based on direct labor hours.
The cost accountant believes that the present system maybe
providing misleading cost information, hence, the plan to change to
the ABC system. For the coming period, the company is planning to
use $5,000 direct labor hours, and its total budgeted factory
overhead amounts to $90,000, broken down as follows:
Activity
Cost Driver
Budgeted
Activity
Budgeted Cost
Setup costs
Number of setups
40
$20,000
Production monitoring
Number of batches
20
$40,000
Quality control
Number of inspections
1,000
$30,000
Projected data for one of the DBTK Company’s product, Product
B, for the coming period are as follows:
Production and sales: 1,000 units
Direct labor hours: 2,000 hours
Units per batch: 500
Number of setups: 4
Number of inspections: 200
Direct material cost: $10 per unit
Direct labor rate: $20 per hour
Question/s:
1. If the Company will use the traditional full cost system,
the cost per unit of product B for the coming period will
be?
2. If the Company will use the ABC system, the cost per unit
of product B for the coming year will be?
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