kauli company produces cellular phones 544638

Activity-Based Costing

Kauli Company produces cellular phones. It has just completed an order for 10,000 phones placed by Stay Connect, Ltd. Kauli recently shifted to an activity based costing system, and its controller is interested in the impact that the ABC system had on the Stay Connect order. Data for that order are as follows: direct materials, $36,950; purchased parts, $21,100; direct labor hours, 220; average direct labor pay rate per hour, $15.

Under Kauli’s traditional costing system, overhead costs were assigned at a rate of 270 percent of direct labor cost.

Data for activity-based costing for the Stay Connect order are as follows:

Required

1. Use the traditional costing approach to compute the total cost and the product unit cost of the Stay Connect order.

2. Using the cost hierarchy, identify each activity as unit level, batch level, product level, or facility level.

3. Prepare a bill of activities for the activity costs.

4. Use ABC to compute the total cost and product unit cost of the Stay Connect order.

5. What is the difference between the product unit cost you computed using the traditional approach and the one you computed using ABC? Does the use of ABC guarantee cost reduction for every order?