MANAGERIAL ACCT.F/MANAGERS>CUSTOM<
4th Edition
ISBN: 9781307090147
Author: Noreen
Publisher: MCG/CREATE
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Chapter 4A, Problem 4A.2E
Activity-Based Absorption Costing as an Alternative to Traditional Product Costing LO3-5
Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined
These products are customized to some degree for specific customers.
Required:
- The company’s
manufacturing overhead costs for the year are expected to be $576,000. Using the company’s traditional costing system, compute the unit product costs for the two products. - Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated based on direct labor-hours and half would be allocated based on engineering design time. This time is expected to be distributed as follows during the upcoming year:
- Compute the unit product costs for the two products using the proposed activity-based absorption costing system.
- Explain why the product costs differ between the two systems.
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