Harwell, Inc

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?

Correct Answer:

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a. $160,000 = $4.00 × 40,000
b. $240,000...

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