Comparison of Traditional Costing and ABC Costing Methods: Overhead Estimates per Product

Calculating Overhead Costs per Product

Among  other  things,  the  CFO  wanted  to  compare  the  overhead  estimates  per  product  based  on  the  traditional  costing and ABC  methods.  In addition, the CFO  wanted to understand, computer or calculate the following: 

 

1. Using the traditional costing method, compute the overhead costs per product. 
2. Using the traditional costing method, compute the total costs per product. 
 

3. Under ABC: 
Authorized for use only in the course Applied Financial Analysis at Sheridan College taught by Umar Minhas  from Sep 14, 2020 to Dec 18, 2020.
 
a. Calculate the activity-based overhead rates per activity cost driver. 
b. For each product, compute the overhead costs per activity cost driver. 
c. Using the overhead costs from b., calculate the total costs per product. 
 
4. Assuming ABC allocated overhead more accurately, which products were incorrectly priced using the traditional costing method?  What difficulties might result from incorrectly budgeted products?  Hint: Think about how capital resources should be allocated to the most efficient opportunities. 

5. What actions might be explored to deal with the mispriced products? 
6. Compare assigned costs per product under both methods.  Why had activity-based costing changed the total costs assigned to each product? 

7. What were two circumstances where  traditional  and ABC costing  would likely yield similar  or equal overhead costs?