Question

The following real-world data has been collected for a small software development company. The two products (standard and scanner) are used by field personnel, supervisors, and engineers in the petroleum industry to collect field data. The scanner model is the more advanced of the two due to its enhanced ability to read bar code data. The standard model sells for $1,350, while the scanner model sells for $2,500.   

Please perform a traditional cost accounting (TCA) and activity based (ABC) cost analysis on each of the two products. The TCA system for this company allocates overhead costs based on direct labor hours.   The ABC system has eight cost pools and drivers. The total cost pool costs, cost driver levels, and product data are provided below. The following calculations/results are necessary:

TCA Overhead Rate

TCA Overhead Costs for both products

TCA Total Product Costs for both products

ABC Overhead Rates for all 8 cost pools

ABC Overhead Costs for both products

ABC Total Product Costs for both products

Compare and discuss the TCA and ABC results

Product	Direct Labor Cost per Unit	Direct Material Cost per Unit
Standard	$165.00	$550.00
Scanner	$330.00	$1,200.00

Product	# of Units Produced
Standard	60
Scanner	10

VBC Data
Total Overhead Cost	$37,660
Total Direct Labor Hours	320 hours
Standard Direct Labor Hours per Unit	4 hours
Scanner Direct Labor Hours per Unit	8 hours

                                                                                                                    1

ABC Cost Pool	Total Overhead Cost	ABC Cost Driver
Travel	$10,400	# of Miles
Service	$9,950	# of Service Calls
Sales	$4,800	# of Presentations
Advertising	$4,400	# of Ads
Purchasing	$4,000	# of Purchases
Utilities	$2,760	# of Phone Hours
Shipping	$750	# of Shipments
Accounting	$600	# of Orders
Total	$37,660

ABC Cost Driver	ABC Cost Driver Level
	Standard (for 60 units)	Scanner (for 10 units)	Total
# of Miles	15,000	7,000	22,000
# of Service Calls	300	100	400
# of Presentations	12	4	16
# of Ads	12	6	18
# of Purchases	3	2	5
# of Phone Hours	120	80	200
# of Shipments	10	10	20
# of Orders	20	10	30

Answer 1

Let us look at the computation done in the tables below:

Convert the TCA for one unit .You will get for std model: $1185.75/unit and for scanner model $2471.5/unit.

Now look at the ABC total cost for std model:$ 430.318/unit and $1184.268/unit.

The ABC cost analysis gives a proper breakdown and picture compared to the TCA model..