TRADITIONAL COSTING VS ABC

1. Ongchan Metal Fabricators has a diverse product line and a complex cost structure, with some jobs
requiring much labor and little machine use and others requiring the opposite mix. Overhead is classified
into two cost pools and two predetermined overhead rates are used. For 2018, it is estimated that total
overhead cost will consist of P200,000 of overhead related to the usage of direct labor hours and
P300,000 of overhead related to machine usage. Total machine usage is expected to be 4,000 hours for
the year, and total direct labor hours are expected to be 16,000.

Job 345 required P2,000 of direct material, 30 hours of labor at P10 per hour, and 10 hours of machine
time.

The company uses traditional costing system which allocates overhead based on the direct labor hours.
Compute for the cost of Job 345. P3,237.50

2. Ongchan Metal Fabricators has a diverse product line and a complex cost structure, with some jobs
requiring much labor and little machine use and others requiring the opposite mix. Because no single
base for a predetermined overhead rate will provide Ongchan Metal management with reliable product
cost information, overhead is classified into two cost pools and two predetermined overhead rates are
used. For 2018, it is estimated that total overhead cost will consist of P200,000 of overhead related to
the usage of direct labor hours and P300,000 of overhead related to machine usage. Total machine usage
is expected to be 4,000 hours for the year, and total direct labor hours are expected to be 16,000.

Job 345 required P2,000 of direct material, 30 hours of labor at P10 per hour, and 10 hours of machine
time.

Compute for the cost of Job 345. 3,425.00

3. A company has identified the following overhead costs and costs drivers for the coming year”

Overhead Item Cost Driver Budgeted Cost Budgeted Activity Level

Machine Setup Number of Setups P20,000 200
Inspection Number of Inspections 130,000 6,500
Material Handling No. of Material Moves 80,000 8,000
Engineering Engineering Hours 50,000 1,000
Total = P280,000
The following information was collected on three jobs completed during the year:

Job 101 Job 102 Job 103

Direct Materials P5,000 P12,000 P8,000
Direct Labor P2,000 P2,000 P4,000
Units Completed 100 50 200
Number of Setups 1 2 4
Number of Inspections 20 10 30
Number of Material 30 10 50
Moves
Engineering Hours 10 50 10

If the company uses ABC, how much overhead cost should be assigned to Job 101?
If the company uses ABC, compute the cost of each unit for Job 102?
The company prices its products at 140% of cost. If the company uses ABC, the price each unit of Job 103
would be?

Answers:
1. 3,237.50
2. 3,425.00
3. P1,300
P340
P98