Managerial Accounting Quiz
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COSTING SYSTEMS
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Veloce Motors manufactures two products, a high-volume scooter (HV) and a low-volume motorcycle (LV). The company's total manufacturing overhead is $1,800,000. For years, Veloce has used a traditional plantwide overhead rate based on direct labor hours (DLH). The controller is now considering an ABC system. Data for the two products is as follows:
- Total DLH: 60,000 (40,000 for HV, 20,000 for LV)
- ABC System Data:
- Setup Costs: $600,000 total; Cost driver is # of setups (100 for HV, 300 for LV)
- Machining Costs: $1,200,000 total; Cost driver is machine hours (50,000 for HV, 50,000 for LV)
By how much is the low-volume motorcycle (LV) undercosted by the traditional direct-labor-hour allocation system compared to the activity-based costing system?
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