BLIT Company produces two automobile antitheft devices. BLIT Boot: a high volume item and BLIT...
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BLIT Company produces two automobile antitheft devices. BLIT Boot: a high volume item and BLIT Club: a low volume item. BLIT Boot BLIT Club Sales (Numbers) 25000 5000 Direct labour hour per unit 1 1 Direct labour cost per unit $ 12 $ 12 Direct Materials per unit $ 40 $ 30 Expected annual manufacturing overhead costs $900,000 The company wants to evaluate the traditional costing system based on direct labour hours with activity based costing system. The activity cost pools, estimated activity and cost drivers are given in the following table. Activity cost pools Estimated overheads Cost drivers Expected use of Cost drivers per activity Setting up machines $300000 Number of setups 1500 setups Machining 500000 Machine hours 50000 machine hours Inspecting 100000 Number of inspections 2000 inspections Total $900000 Cost drivers Expected use in BLIT Boot Expected use in BLIT Club Number of setups 500 1000 Machine hours 30000 20000 Number of inspections 500 1500 a. Calculate unit costs under traditional direct labour hour based costing? (3 marks) b. Calculate unit costs under ABC? (4 marks) c. Compare the unit costs under the two methods and comment on the differences. Which method do you suggest BLIT should adopt? (3 marks)
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