Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 4

Product-Costing Accuracy, Plantwide and Departmental Rates, ABC
Escuha Company produces two type of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products:

Required:
1. Compute the overhead cost per unit for each product using a plantwide, unit-based rate using direct labor hours.
2. Compute the overhead cost per unit for each product using departmental rates. In calculating departmental rates, use machine hours for Department 1 and direct labor hours for Department 2. Repeat using direct labor hours for Department 1 and machine hours for Department 2.
3. Compute the overhead cost per unit for each product using activity-based costing.
4. Comment on the ability of departmental rates to improve the accuracy of product costing.