Alfred Autoparts Inc. previously used a cost system that allocated all factory

Alfred Autoparts Inc. previously used a cost system that allocated all factory overhead costs

to products based on 350 percent of direct labor cost. The company has just implemented an

ABC system that traces indirect costs to products based on consumption of major activities as

indicated below. Compare the total annual costs of Product X using both the traditional

volume-based and the new ABC systems.

Annual Cost Driver

Product X Cost

Activity

Quantity

cost

Driver Consumption

Labor

Machining

Setup

Production order

Material handling

Parts administration

$300000

20000 hours

10000 hours

2000 orders

1000 requisitions

12000 parts

$ 30000

$500000

$100000

$200000

$ 20000

$480000

$10000

800 hours

100 hours

12 orders

5 requisitions

18 parts