Printware Products Inc. produces printers for wholesale distributors. It has just completed packaging an order from Hawes Company for 450 printers. Before the order is shipped, the controller wants to compare the unit costs computed under the company’s new activity-based costing system with the unit costs computed under its traditional costing system. Printware’s traditional costing system assigned overhead costs at a rate of
240 percent of direct labor cost.
Data for the Hawes order are as follows: direct materials, $17,552; purchased parts, $14,856; direct labor hours, 140; and average direct labor pay rate per hour, $17. Data for activity-based costing related to processing direct materials and purchased parts for the Hawes order follow.
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Required
1. Use the traditional costing approach to compute the total cost and the product unit cost of the Hawes 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 Hawes order. (Round your answer to the nearest cent.)
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?

SOLUTION:

| |1. |Hawes Order: | | | | | |
| | | |Direct materials | | |$17,552 | | |
| | | |Purchased parts | |14,856 | | |
| | | |Direct labor (140 hrs. × $17/hr.)