question archive Our company makes and sells several medical devices Until 2020, we used a "traditional" reporting system, with all oveahead (DH) costs allocated to units using machine hours (MHs)
Subject:AccountingPrice: Bought3
Our company makes and sells several medical devices Until 2020, we used a "traditional" reporting system, with all oveahead (DH) costs allocated to units using machine hours (MHs). For 2020, the "traditional" system's estimated OH rate (computed on lll??l?) equaled $32] per MH; estimated total 0H for 2020 equaled $44,940,000. A sample unit-cost repent from the traditional system for one of our pnoducts, model V524, is below: Direct materials 5 1,630.00 Direct labor 170.00 Allocated overhead 255.00 Unit cost 5 2,655.30 Early in 2020, we decided to evaluate the advantages ofa modern activity-based costing (ABC) system. We split our OH costs into eight activity cost pools, selected activity allocation bases for each cost poolI and estimated unit costs using the ABC system. The activity cost pool in the ABC system with the largest amount of overhead was the Production activity cost pool. The activity allocation base for this pool was MHs. Each unit of model V524 was allocated $99.31 from the Production activity cost poo] in the ABC system. 9.1 [5 points]. What was the total amount ofClH in the Production activity cost pool in the ABC system? 9.2 [5 points]. When the ABC system results were communicated inside the company, numerous managers and analysts criticized the new system. One vocal opponent oftlte ABC system was the product manager whose product portfolio included model V524. The manager argued; The ABC system is even less objective and transparent than our old "traditional" system. Everything in the ABC system depends on the choice of the activity allocation bases, and them are many possible choices for each activity pool. I keep hearing this "cost driver" buzz-phrase, but how do we know that the right allocation base is actually selected? How should activity allocation bases in the ABC system be selected for each activity cost poo]? Provide a short and predate answer, without using the "cost driver" buzz-phrase disliked by the product manager above.