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Fortune Industries manufactures two products Beds and Sofas; total manufacturing overhead costs are current allocated...

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Accounting

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Fortune Industries manufactures two products Beds and Sofas; total manufacturing overhead costs are current allocated using number of direct labor hours only, but the controller has recommended an activity based costing system (ABC) using the following data: Activity Cost Driver Cost Activity Level Beds Sofas Total Supporting direct labor Number of Direct Labor hours AED 427,500 21,000 36,000 57,000 Setting up machines Number of setups 655,785 798 2,5653,363 Parts administration Number of part types 1,607,400 1,539 1,140 2,679 Total manufacturing overhead costs AED 2,690,685) Required: A. Compute the amount of overhead to be allocated to each of the company's two products (Beds & Sofas) under the traditional costing system in which it applies manufacturing overhead based on number of direct labor-hours only. (4 marks) B. Compute the amount of overhead to be allocated to each of the company's two products (Beds & Sofas) under activity-based costing system (ABC) if the above three activities are used to allocate overhead costs. (11 marks) Answer for Question 7 - A: A. Traditional Costing System (4 marks) B. ABC Costing System (11 marks)

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