why might managers favor this abc system instead of abram rsquo s older system which 556838

Product costing in an ABC system

The Abram Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in handheld video phones. Consider the following data regarding component T24:

Direct materials cost

$ 81.00

Direct labor cost

$ 21.00

Activity costs allocated


Manufacturing product cost

$ ?

The activities required to build the component follow:


Allocation Base

Cost Allocated to Each Unit

Start station

Number of raw component chasis

1 x $ 1.20

$ 1.20

Dip insertion

Number of dip insertions

? x $ 0.35


Manual insertion

Number of manual insertions

11 x $ 0.20


Wave solder

Number of components soldered

1 x $ 1.60



Number of backload insertions

4 x ?



Testing hours

0.38 x $ 50.00


Defect analysis

Defect analysis hours

0.14 x ?


Total indirect activity costs

$ ?


1. Complete the missing items for the two tables.

2. Why might managers favor this ABC system instead of Abram’s older system, which allocated all conversion costs on the basis of direct labor?

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