(Contrasting Traditional and ABC Costing) Brixton Industries makes three products: widgets, gadgets, and helios. The following budget information relates to Brixton for next year.
Widgets
Gadgets
Helios
Sales and production (units)
50,000
40,000
30,000
Selling price (per unit)
$45
$95
S73
Direct labour and materials (per unit)
$32
$84
565
Machine hours per unit in Machining Dept.
2
5
4
Direct labour hours per unit in Assembly Dept.
7
3
2
Overhead is allocated to production departments as follows:
Machining Department at $1.20 per machine hour
Assembly Department at $0.825 per direct labour hour
However, you have determined that the overheads could be reanalyzed into cost pools as below:
Cost pool
Cost ($)
Cost Driver
Quantity
Machining services
357,000
Machine hours
420,000
Assembly services
318,000
Direct labour hours
530,000
Set-up
26,000
Set-ups
520
Order processing
156,000
Customer orders
32,000
Purchasing
84,000
Supplier orders
11,200
You have also been provided with the following estimates for the current accounting period.
Widgets
Gadgets
Helios
Number of set-ups
120
200
200
Customer orders
8,000
8,000
16,000
Supplier orders
3,000
4,000
4,200
Prepare a report showing profitability for each product for the next year using the traditional overhead allocation method.
Prepare a report showing profitability for each product using activity-based costing.
Explain the differences between the products’ profitability using traditional and activity-based costing.
