You have a business manufacturing Artfarts for Dogtown, Inc.. Following is the costing data you have

been using:

Direct materials = $6.00 per pound

Direct labor =$24.00 per DLH

Overhead = $25.00 per DLH

There are two versions of the Artfarts you manufacture, Simple and Fancy, and you incurred the

following:

Simple Fancy

DM = 4,000 pounds 2,000 pounds

DLH = 5,000 3,000

Number of batches = 4 12

Number of machine hours (MH) = 4,000 3,000

You want to implement an Activity Based Costing system to better allocate overhead to the tivo

different products and have come up with the following cost activity pools:

Activity Pool Costs Driver

Fabrication = $84,000 MH

Machine set-up = 64,000 Batches

General overhead = 52,000 DLH

__________

Total overhead costs = $200,000

During 2022 you made 2,000 Simple and 600 Elaborate Artfarts, incurred $192,000 of direct labor, spent

$36,000 on direct materials, and spent $200,000 on overhead.

1. What is the average cost of a Simple and a Fancy Artfart using the old overhead allocation

method of $25 per DL to allocate the $200,000 of overhead? Don't forget direct costs.

2. What is the average cost of a Simple and a Fancy Artfart using the ABC costing data from

above to allocate the $200,000 of overhead?

3. Why is the ABC method better at costing the Artfarts than the old method? Be specific in your

answer.