Managing Engineering and Technology 6th Edition by Lucy Morse,Daniel Babcock

Exercise 5

ABC Corporation produces 50,000 units of product X and 5,000 units of product Y at a direct materials cost of $3.00 per unit. Product X requires 3 minutes and product Y 30 minutes direct labor per unit (at $20.00 per hour). Other costs (tooling, setup, and equipment depreciation and maintenance) for this period amount to $60,000. ( a ) If these "other costs" are allocated on the basis of direct labor hours, what is the apparent unit cost of each product? ( b ) Production of product X is highly automated to reduce direct labor cost; it is responsible for $55,000 of this "other cost," and product Y only $5,000. Using activitybased costing , what do the unit costs now become? ( c ) What difference might this make in ABC Corporation's actions?