Compute a predetermined overhead rate for year two for each cost driver using the estimated costs and estimated cost driver units prepared by the consultant
Compute a predetermined overhead rate for year two for each cost driver using the estimated costs and estimated cost driver units prepared by the consultant. Also, compute a predetermined rate for year two using direct labor-hours as the allocation base.
Compute the production costs for each product for January using direct labor-hours as the allocation base and the predetermined rate computed in Part 1.
Compute the production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in Part 1. (Note: Do not assume that total overhead applied to products in January will be the same for activity-based costing as it was for the labor-hour-based allocation.)
Management has seen your numbers and wants an explanation for the discrepancy between the product costs using direct labor-hours as the allocation base and the product costs using activity-based costing. Write a brief response to management.