Activity Based Costing as an Alternative to Traditional Product Costing Essay

If manufacturing smash rates were allocated based on direct labor hours, the total manufacturing budget items monetary value for apiece output will seven cardinal cardinal thousand dollars ($750,000) and two hundred fifty thousand dollars ($250,000) for the mono-relay and bi-relay, severally. This is computed by multiplying the adept million dollars ($1,000,000) total manufacturing command processing overhead with the total direct labor apostrophize for each product over the total direct labor cost for both products.The manufacturing overhead cost per whole of product is eighteen dollars and cardinal cents ($18. 75) and twenty-five dollars ($25) for the mono-relay and the bi-relay, respectively. This is arrived at by dividing the manufacturing overhead cost allocated to each product with the number of units produced. The total product cost is sixty-two dollars and seventy-two cents ($62. 75) and 85 dollars ($85) for the mono-relay and bi-relay, respectively.If the manufac turing overhead rate was allocated based on Activity Based Costing, the manufacturing overhead rate will be allocated to each military action pools as follows maintaining separate sixty thousand dollars ($60,000) and one hundred twenty thousand dollars ($120,000) for the mono-relay and bi-relay, respectively processing seventy-two thousand dollars ($72,000) and eighteen thousand dollars ($18,000) for the mono-relay and bi-relay, respectively prime(prenominal) control one hundred thousand dollars ($100,000) and one hundred xxx thousand dollars ($130,000) for the mono-relay and bi-relay, respectively and machine-related overhead two hundred thousand dollars ($200,000) and ternion hundred thousand dollars ($300,000) for the mono-relay and bi-relay, respectively. This is computed by multiplying the pre-determined overhead cost for each drill with ratio as given in the problem.The total manufacturing cost for each product is four hundred thirty-two thousand dollars ($432,000) an d five hundred sixty-eight dollars ($568,000) for the mono-relay and bi-relay, respectively. The figure is arrived at by adding the manufacturing overhead allocated to the each activity pool for each of the product, as computed above. The unit product cost per unit of product, using Activity Based Costing, is ten dollar and eighty cents ($10. 8) and cardinal dollars and eighty cents. The bi-relay is not more profitable than the mono-relay. Since the company is producing seventy-five part less bi-relay than mono-relay, the cost of maintaining parts inventory, quality-control and machine-related cost is much higher per unit of bi-relay than mono-relay.