Q1 & Q2 - OVERHEAD COSTS AND PRODUCT COSTS USING TRADITIONAL COSTING METHOD

Widgets Gadgets Smidgets

Direct labor $ 100,000 $ 300,000 $ 400,000
Direct material $ 100,000 $ 200,000 $ 150,000
Overhead cost $ 200,000 $ 600,000 $ 800,000
Product cost $ 400,000 $ 1,100,000 $ 1,350,000

Q3a - ACTIVITY-BASED OVERHEAD RATES

Cost allocation base Total costs Quantity Overhead rates
Depreciation $ 300,000 3,000 $ 100
Set-up $ 700,000 1,000 $ 700
Rent $ 1,000,000 100,000 $ 10

Q3b - OVERHEAD COSTS PER PRODUCT USING ABC

Widgets Gadgets Smidgets
Depreciation
Machine hours 500 900 400
Cost $ 50,000 $ 90,000 $ 40,000
Set-up
Set-up hours 200 300 100
Cost $ 140,000 $ 210,000 $ 70,000
Rent
Square feet 20,000 30,000 10,000
Cost $ 200,000 $ 300,000 $ 100,000
Overhead cost $ 390,000 $ 600,000 $ 210,000

Q3C - PRODUCT COSTS USING ABC

Widgets Gadgets Smidgets
Direct labor $ 100,000 $ 300,000 $ 400,000
Direct material $ 100,000 $ 200,000 $ 150,000
Overhead cost $ 390,000 $ 600,000 $ 210,000
Product cost $ 590,000 $ 1,100,000 $ 760,000

Q4. COMPARE PRODUCT COSTS OF EACH COSTNG METHOD

Costing method Widgets Gadgets Smidgets
Traditional $ 400,000 $ 1,100,000 $ 1,350,000
ABC $ 590,000 $ 1,100,000 $ 760,000
ONAL COSTING METHOD
Smadgets
$ 200,000
$ 250,000
$ 400,000
$ 850,000

Overhead rates
/ machine hours
/ set-up hours
/ square feet

Smadgets

1,200
$ 120,000

400
$ 280,000

40,000
$ 400,000
$ 800,000

Smadgets
$ 200,000
$ 250,000
$ 800,000
$ 1,250,000
 Smadgets
$ 850,000
$ 1,250,000