3. Under activity-based costing, a total of $1,500,000 is assigned to Model
X100 and a total of $500,000 is assigned to Model X200. This is in con-
trast to $1,600,000 for Model X100 and $320,000 for Model X200 under
the traditional costing method. Also note that the total amount of over-
head applied to both products is $2,000,000 under activity-based cost-
ing and $1,920,000 under the traditional costing method. A number of
reasons exist for these differences. First, not all manufacturing overhead
costs are assigned to products under activity-based costing. Apparently
$190,000 (= $1,920,000 – $1,730,000) of manufacturing overhead con-
sists of the costs of idle capacity and organization-sustaining costs that
are not assigned to products under activity-based costing. Counterbal-
ancing this, a total of $270,000 in nonmanufacturing costs are assigned
to products under activity-based costing, but not under the traditional
method. Additionally, manufacturing overhead costs have been shifted
from Model X100, the high-volume product, to Model X200, the low-
volume product under activity-based costing. This is probably due to the
existence of batch-level or product-level costs that are more appropri-
ately assigned under activity-based costing.
Per unit costs have changed under activity-based costing. This is
partly due to the exclusion of some manufacturing overhead from prod-
uct costs and the inclusion of nonmanufacturing overhead costs. But it is
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