Swanson Corp

Multiple Choice

Swanson Corp. manufactures and sells decorative bird feeders and birdhouses to local vendors. As a new business, they are trying to determine how to appropriately cost their items and have narrowed the choices to a traditional costing system and Activity-Based Costing (ABC) . Their Direct Materials (DM) include (same for both products) : Concrete, $12,500; and wood, $23,620. Their Direct Labor (DL) includes (same for both products) : Wages (assembly line worker) , $58,900; and Wages (painter) , $42,850. Under a traditional costing system, their Manufacturing Overhead (MOH) would be 88% of their direct labor costs. If they decide to go with ABC, then they have identified the following key activities and costs: Property tax, $18,400 ($1.50 per square foot) ; Wages, supervisor, $56,800 ($7.10 per hour) ; and Cleaning, $24,700 ($3.81 per hour) . Swanson intends to stick to the following production schedule:
Bird feeders: 18,640 units; 8,100 square feet; 5,230 supervisor hours; and 3,900 cleaning hours.
Birdhouses: 12,307 units; 4,150 square feet; 2,770 supervisor hours; and 2,580 cleaning hours.
If Swanson chooses to use a traditional costing system instead of ABC, then what is the difference in total product costs for bird feeders?

A) Traditional costing is $25,398.00 higher than ABC.
B) Traditional costing is $25,398.00 lower than ABC.
C) Traditional costing is $54,439.00 higher than ABC.
D) Traditional costing is $54,439.00 lower than ABC.