Question

Please respond A to E (all the questions)

This is the exact information and I don't know how to do it and I really need help.

Harwell, Inc. uses a traditional volume-based costing system in which direct labor hours are the allocation base. Harwell produces two different products: Product A, which uses 86,000 direct labor hours, and Product B, which uses 20,000 direct labor hours. Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $900,000 across three activities: Setup, Production, and Finishing. Under the traditional volume-based costing system, the predetermined overhead rate is $9.00/direct labor hour. Under the ABC system, the cost of each activity and proportion of the activity drivers used by each product are as follows:

  

	Total Cost		Proportion used by Product A		Proportion used by Product B
Design (Engineering Hours)	$	70,000	30	%	70	%
Production (Direct Labor Hours)	$	343,000	40	%	60	%
Inspection (Batches)	$	90,000	20	%	80	%

Required:

a. Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.

b. Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.

c. Calculate the indirect manufacturing costs assigned to Product A under the ABC system.

d. Calculate the indirect manufacturing costs assigned to Product B under the ABC system.

e. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

Answer 1

Answer a:

Indirect manufacturing overheads = 86,000 * 9

= $ 774,000

Answer b:

Indirect manufacturing overheads = 20,000 * 9

= $ 180,000

Answer c:

Indirect manufacturing overheads = (70,000 * 30%) + (343,000 * 40%) + (90,000 * 20%)

= $ 176,200

Answer d:

Indirect manufacturing overheads = (70,000 * 70%) + (343,000 * 60%) + (90,000 * 80%)

= $ 326,800

Answer e:

Product A is over-costed. Product B is under-costed.

In case of any doubt, please feel free to comment.