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A company makes two products, X and Y, and budgets to produce 80,000 units of X and 100,000 units of Y each year. Using traditional absorption costing, with production overheads absorbed at the rate of 50% of direct labour costs, unit product costs are as follows.
A recent investigation has shown that 10% of total overhead costs are incurred in materials handling, and that the driver of materials handling costs is the number of stores items handled. A unit of product X contains 2 materials items and a unit of product Y contains 8 materials items. If activity based costing (ABC) were applied to materials handling costs, by how much would the cost per unit of products X and Y differ from the unit full costs based entirely on traditional absorption costing? A. The unit cost of X would be $0.90 lower and the unit cost of Y $0.88 higher. B. The unit cost of X would be $1.25 lower and the unit cost of Y $1 higher. C. The unit cost of X would be $1 lower and the unit cost of Y $1 higher. D. The unit cost of X would be $0.75 lower and the unit cost of Y $3 higher. |