Castenet Company Uses a Volume-Based Costing System That Applies Overhead

question 144

Essay

Castenet Company uses a volume-based costing system that applies overhead cost based on direct labor hours at $250 per direct labor hour.
The company is considering adopting an activity-based costing system with the following data: The two jobs processed in the month of June had the following characteristics: Required:
1. Compute the unit manufacturing cost of each job under the firm's current volume-based costing system.
2. Compute the unit manufacturing cost of each job under the activity-based costing system.
3. Compare the unit manufacturing cost for Jobs A and B computed in requirements 1 and 2.
(a) Why do the two cost systems differ in their total cost for each job?
(b) Why might these differences be important to the Company?

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Definitions:

Data

Information processed or stored by a computer or device, essential for tasks such as analysis, decision making, and control in automation systems.

Routine

A sequence of instructions or operations performed repeatedly in a control system or software to accomplish a specific task.

Debt Finance

A method of financing where funds are borrowed and are expected to be paid back with interest.

Equity Finance

A method of raising capital through the sale of shares in a company, giving shareholders ownership interests.