Harwell,Inc

question 25

Essay

Harwell,Inc.produces two different products,Product A and Product B.Harwell uses a traditional volume-based costing system in which direct labor hours are the allocation base.Harwell is considering switching to an ABC system by splitting its manufacturing overhead cost of $400,000 across three activities: Setup,Production,and Finishing.Under the traditional volume-based costing system,the predetermined overhead rate is $4.00/direct labor hour.Under the ABC system,the rate for each activity and usage of the activity drivers are as follows:
Required:
a.Calculate the indirect manufacturing costs assigned to Product A under the traditional costing system.
b.Calculate the indirect manufacturing costs assigned to Product B under the traditional costing system.
c.Calculate the indirect manufacturing costs assigned to Product A under the ABC system.
d.Calculate the indirect manufacturing costs assigned to Product B under the ABC system.
e.Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?

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Definitions:

Outside Supplier

A third-party entity that provides goods or services to a company, typically not affiliated with the purchasing company.

Opportunity Cost

The expense incurred by not choosing the second-best option during decision-making.

Managerial Decision

Choices or judgments made by managers in the context of strategic planning and resource allocation to achieve business objectives.

Short-term

Referring to a period of time typically less than one year, used in context of planning, finance, or objectives.