Carter, Inc

Carter, Inc. produces two different products, Product A and Product
B. Carter uses a traditional volume-based costing system in which direct labor hours are the allocation base. Carter is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Design, Production, and Inspection. The cost of each activity and usage of the activity drivers are as follows:
Carter manufactures 10,000 units of Product A and 7,500 units of Product B per month.
Required:
a. Calculate the predetermined overhead rate under the traditional costing system.
b. Calculate the activity rate for Design.
c. Calculate the activity rate for Machining.
d. Calculate the activity rate for Inspection.
e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system.
f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system
g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system.
h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system.
i. 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. $2.50 = ($300,000 + $500,000 + $200,0...

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