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Q: What conclusions can you draw about the use of traditional costing versus ABC costing...

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Accounting

Q: What conclusions can you draw about the use of traditional costing versus ABC costing for the Blake Company? What recommendations do you have for the president?

Flops Chops
Sales Price per Unit $200 $600
Direct Materials per Unit $100 $300
Direct Labor Cost per Unit $30 $50
Direct Labor Hours per Unit 2 6
Number of Units Produced 30,000

20,000

Traditional Costing System based

Flops Chops Total
Predetermined Variable overhead rate $1,633,333 $3,266,667 $4,900,000

Traditional Costing System based

Flops Chops
Unit Product Costs $214.44 $763
Contribution Margin per Unit -$14.44 -$163

ABC costing system based

Activity Cost Pool Estimated Overhead Cost Expected Activity Level Predetermined Overhead Rate
Setups $860,000 200 setups $4,300
Scrap 400,000 500 units $800
Testing 300,000 5,000 tests $60
Machine Related 2,440,000 100,000 machine related $24
Total $4,000,000

ABC costing based

Direct Material per Unit $100 $300
Direct Labor per Unit $60 $300
Manufacturing Overhead $27 $160
Production Cost $187 $760
Contribution Margin per Unit $13 -$160

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