Ted's Manufacturing makes two products, B and C. They each take 2 direct labor hours and 2 machine hours to produce. A batch of Product B, however, uses twice the number of machine set-ups and requires 3 times as many materials requisitions as does Product C. Which of the following is most likely true?

a. The product cost of Product B will be higher under ABC than under traditional costing. b. The product cost of Product C will be higher under ABC costing than under traditional costingc. Traditional costing assigns a product cost that is too low to Product C. d. Traditional costing assigns a product cost that is too high to Product B.

Question

Gunner Mueller

Business

29 September, 16:35

Ted's Manufacturing makes two products, B and C. They each take 2 direct labor hours and 2 machine hours to produce. A batch of Product B, however, uses twice the number of machine set-ups and requires 3 times as many materials requisitions as does Product C. Which of the following is most likely true?

a. The product cost of Product B will be higher under ABC than under traditional costing. b. The product cost of Product C will be higher under ABC costing than under traditional costingc. Traditional costing assigns a product cost that is too low to Product C. d. Traditional costing assigns a product cost that is too high to Product B.

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Answers (1)

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Abigayle Chavez · Answer 1

a.

Explanation:

Based on the scenario being described within the question it can be said that the statement that is most likely true is that the product cost of product B will be higher under ABC than under traditional costing. This is because Activity-based costing (ABC) bases their overhead costs on the actual consumption by each while traditional costs overhead is applied based on the amount of machine hours consumed. Therefore since product B is characterized as having lots of consumption then it's product cost will be higher under ABC costing.