4.5: Differences based on factory overhead method

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Although the total factory overhead applied, $54,600, is the same for all three methods, how it is allocated between the two jobs varies by method, as follows:

	Single Factory	Departmental	ABC Costing
Job 1:	$38,220	$38,625	$37,500
Job 2:	16,380	15,975	17,100
Total	$\ \overline{$54,600}$	$\ \overline{$54,600}$	$\ \overline{$54,600}$

ABC is the most specific strategy because it analyzes identifiable activities closely, resulting in more precise estimates of many of the elements of overall factory overhead. The results of the other two methods in the sample problem would overstate the amount of factory overhead that is applied to Job 1 and understate the amount for Job 2. When making decisions, such as determining a product’s selling price, it is critical to have sound cost information.