Calculating Overhead Costs per Product
Among Â other Â things, Â the Â CFO Â wanted Â to Â compare Â the Â overhead Â estimates Â per Â product Â based Â on Â theÂ traditional Â costing and ABC Â methods. Â In addition, the CFO Â wanted to understand, computer or calculate the following:Â
1. Using the traditional costing method, compute the overhead costs per product.Â
2. Using the traditional costing method, compute the total costs per product.Â
3. Under ABC:Â
Authorized for use only in the course Applied Financial Analysis at Sheridan College taught by Umar Minhas Â from Sep 14, 2020 to Dec 18, 2020.
a. Calculate the activity-based overhead rates per activity cost driver.Â
b. For each product, compute the overhead costs per activity cost driver.Â
c. Using the overhead costs from b., calculate the total costs per product.Â
4. Assuming ABC allocated overhead more accurately, which products were incorrectly priced using the traditional costing method? Â What difficulties might result from incorrectly budgeted products? Â Hint: Think about how capital resources should be allocated to the most efficient opportunities.Â
5. What actions might be explored to deal with the mispriced products?Â
6. Compare assigned costs per product under both methods. Â Why had activity-based costing changed the total costs assigned to each product?Â
7. What were two circumstances where Â traditional Â and ABC costing Â would likely yield similar Â or equal overhead costs?