Question

Arrow Electronics manufactures various computer hardware products. The company estimated it would incur $165,000 in manufacturing overhead costs during the current period. At present, Arrow currently uses a single overhead rate that is allocated to the products based on direct labour-hours. Data concerning the current period's production of two products, Sound Card and Video Card are tabulated below:

	Sound card	Video Card
Estimated volume	3,400 units	4,800 units
Direct labour-hours per unit	1.40 hour	1.90 hours
Direct materials cost per unit	$7.40	$12.70
Direct labour cost per unit	$14.00	$19.00

The company is considering using an activity-based costing system (ABC) to compute unit product costs for external financial reports instead of its current traditional system based on direct labour-hours. The activity-based costing system would use three activity cost pools. Expected and actual data relating to these activities for the current period are given below:

Activity Cost Pool	Expected Overhead Costs	Expected Activity
		Sound Card		Video        Card	Total
Machine setups	$ 15,000	80	170			250
Purchasing	80,000	700	900			1,600
General factory	70,000	5,000	9,000			14,000
	$165,000
Activity Cost Pool	Actual Overhead Costs	Actual Activity
		Sound Card		Video        Card	Total
Machine setups	$ 12,190	80	150			230
Purchasing	79,200	730	920			1,650
General factory	69,400	4,760	9,120			13,880
	$160,790

Required:

1. Determine the unit product costs for each product using ABC. Assume that the company is using a normal costing system

Answer 1