Ted's Manufacturing Makes Two Products, B and C

question 116

Multiple Choice

Ted's Manufacturing makes two products, B and C. They each take 2 direct labor hours and 2 machine hours to produce. A batch of Product B, however, uses twice the number of machine set-ups and requires 3 times as many materials requisitions as does Product C. Which of the following is most likely true?

• A) The product cost of Product C will be higher under ABC than under traditional costing
• B) Traditional costing assigns a product cost that is too low to Product B
• C) Traditional costing assigns a product cost that is too low to Product C
• D) The product cost of Product B will be higher under ABC than under traditional costing

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Definitions:

Factory Depreciation

The process of allocating the cost of a physical factory plant and its equipment over its useful life, reflecting wear and tear over time.

Total Raw Materials

The sum of all raw materials that are available for use in the production process, including both those already in process and those in stock waiting to be used.

Direct Labor Costs

Expenses directly associated with the labor used in producing goods or services, including wages for employees who work on the production line.

Manufacturing Overhead

All indirect costs associated with the production process, excluding direct materials and direct labor.