7 21 Comparing Traditional And Abc Costs Lo 2 3 Ellis Perry Is An Electronics Compon 2391982

7-21 Comparing traditional and ABC costs (LO 2, 3) Ellis Perry is an electronics

components manufacturer. Information about the company’s two products follows:

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AM-2 FM-9

Units produced 15,000 2,000

Direct labor hours required for production 15,000 14,000

Units per batch 3,000 50

Shipping weight per unit 0.5 lbs. 4 lbs.

The company incurs $899,000 in overhead per year and has traditionally applied overhead

on the basis of direct labor hours.


a. How much overhead will be allocated to each product using the traditional direct

labor hours allocation base? What overhead cost per unit will be allocated to each


b. Assume that Ellis Perry has identified three activity cost pools.

Pool Cost Cost Driver

Assembly $638,000 Direct labor hours

Setup 121,500 Number of setups (1 per batch)

Packaging 139,500 Weight

Given these activity pools and cost drivers, how much overhead should be allocated to

each product? What overhead cost per unit will be allocated to each product?

c. Explain the change in overhead costs per unit.