question archive Comparison of acttvlty-based and traditional product costs: manufacturer Paris Fashions Ltd has switched from a traditional product costing system to an activity—based product costing system to assign manufacturing overhead costs to products
Comparison of acttvlty-based and traditional product costs: manufacturer Paris Fashions Ltd has switched from a traditional product costing system to an activity—based product costing system to assign manufacturing overhead costs to products
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Comparison of acttvlty-based and traditional product costs: manufacturer Paris Fashions Ltd has switched from a traditional product costing system to an activity—based product costing system to assign manufacturing overhead costs to products. The table below shows the cost per unit of two products from its winter range under the two costing systems: Costing system Sweater Overcoat Traditions] $39 $23 ABC $3 3 $30 Required: 1. Describe the most likely features of Paris Fashions' sweater and overcoat products by replacing the question marks in the following table with 'Yes' or 'No', Product feature Sweater Overcoat High-volume product line ? ? Low-volume product line 1' T Produced in small batches it ? Produced in large batches '2' ? Simple lo produce '1' ? Complex to produce 5' 9 2. Explain your answers to requirement 1.
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Question 1:
- The answer to Question 1 is attached in the below section as Question 1
Question 2:
- The cost per unit using ABC costing for Sweater is $33 and for Overcoat is $50.
- The low cost per unit of Sweater can be there because of the high volume product line which also gives the benefits of learning curve to reduce the cost per unit.
- The Low volume product line results on increase of cost per unit.
- Produced in small batches will result in increasing the cost per unit of Overcoat. The large production of sweaters helps in reduction of cost per unit.
- Simple process of production costs less to produce compared to complex process of production and therefore the cost of production of sweater is less compared to the Overcoat.
|
Product Features |
Sweater |
Overcoat
|
|
High volume product line
|
Yes |
No |
|
Low-volume product line No Yes
|
No |
Yes |
|
Produced in small batches No Yes
|
No |
Yes |
|
Produced in large batches Yes No
|
Yes |
No |
|
Simple to produce Yes No
|
Yes |
No |
|
Complex to produce No Yes |
No |
Yes |
