A.

Believing that its traditional cost system may be providing misleading information, an
organization is considering on activity-based (ABC) approach. It now employs a full cost system
and has been applying its manufacturing overhead on the basis of machine hours. The
organization plans on using 50,000 direct labor hours and 30,000 machine hours in the coming
year. The following data show the manufacturing overhead that is budgeted.
Activity
Material Handling
Setup Costs
Machining Costs
Quality Control

Cost Driver
Budgeted Activity
No of Parts Handled
6,000,000
No of setups
750
Machine Hours
30,000
No. of batches
500
Total manufacturing overhead cost

Budgeted Cost
php720,000.00
315,000.00
540,000.00
225,000.00
php1,800,000.00

Cost, sales, and production data for one of the organizations products for the coming year are
as follows:
Prime costs:
Direct Material cost per unit
Direct Labor cost per unit
(.05DLH @ PHP15.00/DLH)
Total Prime cost
Sales and production data:
Expected Sales
Batch size
Setups
Total parts per finished unit
Machine Hours Required

php 4.40
php .75
php 5.15

20,000 units
5,000 units
2 per batch
5 parts
60MH per batch

Question No. 1 (5pts)

If the organization uses the traditional full cost system (job order system), the cost per unit for
this product for the coming year will be?
Question No. 2 (5pts)
If the organization employs an activity-based costing system, the cost per unit for the product
described for the coming year will be?

B. Davis Corporation has used a traditional cost accounting system to apply quality control costs
uniformly to all products at a rate of 15% direct labor cost. Month direct labor cost for its main
product is PHP30,000.00. In an attempt to distribute quality control more equitable, Davis is
considering activity-based costing (ABC). The monthly data shown below have been gathered for
the main product. The three activities are (1) incoming materials inspection, (2) in process

inspection, and (3) product certification. Costs are to be allocated to each activity on the basis of
cost drivers.
Activity
(1)
(2)
(3)

Cost Driver
Number of types of material
Number of units
Number of orders

Cost Rate
P12 per type
P0.14 per unit
P77 per order

Quantity for Main Product

12types
17,500 units
30 orders

Question No 1. (5points)
The quality control cost assigned to the main product using ABC is how much higher or lower
than the quality control cost assigned to the main product using Tradition Costing?