# Activity-Based Costing p7. Kall Company produces cellular phones. It has just completed an order...

Activity-Based Costing

p7. Kall Company produces cellular phones. It has just completed an order for 10,000 phones placed by Connect, Ltd. Kall recently shifted to an activity-based costing sys- tem, and its controller is interested in the impact that the ABC system had on the Connect order. Data for that order are as follows: direct materials, $36,950; pur- chased parts,$21,100; direct labor hours, 220; and average direct labor pay rate per hour, $15. Under Kall’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 Connect order follow. Activity Cost Driver Activity Cost rate Activity Usage Electrical engineering design Engineering hours$19 per engineering hour   32 engineering hours Setup        Number of setups      $29 per setup 11 setups Parts production Machine hours$26 per machine hour        134 machine hours Product testing              Number of tests          $32 per test 52 tests Packaging Number of packages$0.0374 per package         10,000 packages Building occupancy                 Machine hours            $9.80 per machine hour 134 machine hours Assembly Direct labor hours$15 per direct labor hour     220 direct labor hours

reQUIreD

1.    Use the traditional costing approach to compute the total cost and the product unit cost of the Connect order. (Round unit costs to the nearest cent.)

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 Connect order. (Round activity costs to the nearest dollar, and round unit costs to the nearest cent.)

5.    aCCounting ConneCtion ▶ 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?