(ABC; pricing; cost drivers) Believing that its traditional cost system may be providing misleading information, Dover Corporation is considering an activity-based costing (ABC) approach

| April 14, 2018

(ABC; pricing; cost drivers) Believing that its traditional cost system may be providing misleading information, Dover Corporation is considering an activity-based costing (ABC) approach. Dover Corporation employs a full-cost system and has been applying its manufacturing overhead on the basis of machine hours. The organization plans on using 50,000 direct labor hours and 30,000 machine hours in 2010.The following data show the manufacturing overhead that is budgeted:ActivityBudgeted Cost DriverBudgeted Activity CostMaterial handlingNumber of parts handled6,000,000$ 720,000Setup costsNumber of setups750315,000Machining costsMachine hours30,000540,000Quality controlNumber of batches500225,000Total manufacturing overhead cost$1,800,000Cost, sales and production data for one of the company’s products for the coming year are as follows:Direct material cost per unit$4.40Direct labor cost per unit (.05 DLH @ $15 per DLH)0.75Sales and production data:$5.15Expected sales20,000 unitsBatch size5,000 unitsSetups2 per batchTotal parts per finished unit5 partsMachine hours required80 MH per batcha. Compute the per-unit cost for this product for 2010 if Dover Corporation uses the traditional full-cost system.b. Compute the per-unit cost for this product for 2010 if the Dover Corporation employs an activity-based costing system.

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