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Grant Company is considering the adoption of an activity-based costing (ABC) system because the managers...

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Accounting

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Grant Company is considering the adoption of an activity-based costing (ABC) system because the managers suspect that their traditional costing system distorts the product cost. This company produces and sells only two products M41 and N23. Their traditional costing system uses direct labor hours as the allocation base for manufacturing overhead cost. The production managers decided that major activities are Machine setups, Special Processing and General factory and determined the costs for each activity. They also identified how many setups, Machine Hours, and Direct Labor Hours each product requires. Number of units sold Price Direct Material cost per unit Direct Labor Hours per unit M41 4,000 150 44 1 $ S S s N23 1,000 230 72 2 $ 20.00 The wage rate per hour is: # of setups The company collected the data for ABC as follows: Activity Cost Pool Cost Driver or Activity Measure Machine setup Special processing Machine hours General factory Direct-labor hours Tota! cost $45,000 45,000 60.000 S150,000 Activity Measure # of setups M41 60 8,000 4,000 N23 120 12,000 2.000 Machine hours General factory (DLHS). 17 The total overhead cost allocated to M41 under ABC is: A. $ 73,000 B. $ 90,000 C. $ 77,000 D. $ 150,000 E. None of the above

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