Johnson manufactures products X and Y,applying overhead on the basis of labor hours.X is a high-volume product and relatively simplistic in nature.Y is both a low-volume product and requires a variety of complex manufacturing procedures.What would an activity-based costing system likely disclose about products X and Y as a result of Johnson's current accounting procedures?
A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question

Johnson manufactures products X and Y,applying overhead on the basis of labor hours.X is a high-volume product and relatively simplistic in nature.Y is both a low-volume product and requires a variety of complex manufacturing procedures.What would an activity-based costing system likely disclose about products X and Y as a result of Johnson's current accounting procedures? 
A)Choice A 
B)Choice B 
C)Choice C 
D)Choice D 
E)Choice E

Quizplus · Accepted Answer

Johnson's current accounting procedure of applying overhead on the basis of labor hours does not accurately reflect the resources consumed by each product. An activity-based costing system would likely reveal that Y consumes more resources than X due to its varied and complex manufacturing procedures, resulting in a higher cost per unit for Y. This information may prompt Johnson to consider adjusting the price of Y or exploring ways to streamline its manufacturing process to reduce costs.

Johnson Manufactures Products X and Y,applying Overhead on the Basis