ACC Problem E18-24

Traditional Product Costing versus Activity Based Costing

Assume that Panasonic Company has determined its estimated total manufacturing overhead cost for one of its plants to be $204,000 consisting of the following activity cost pools for the month.

Activity CenterActivity CostsCost DriverActivity Level

Assembly setup$45,000Setup hours1,500

Material Handling15,000Number of moves300

Assembly120,000Assembly hours12,000

Maintenance24,000Maintenance hours1,200

Total$204,000

Total direct labor hours used during the month were 8,000. Panasonic produced many different electronic products, including the following two products produced during the current month:

Model x301Modelz205

Units produced1,0001,000

Direct material cost$15,000$15,000

Direct Labor Cost$12,500$12,500

Direct Labor hours500500

Setup hours50100

Material moves2550

Assembly hours800800

Maintenance hours1040

a.Calculate the total cost per-unit cost of each model using direct labor hours to assign manufacturing overhead to products.

b.Calculate the total per-unit cost of each model using activity-based costing to assign manufacturing overhead to products.

c.Comment on the accuracy of the two methods for determining costs.

d.Discuss some of the strategic implications of your answers to the previous requirements.