Fenway Electronics produces video games in three market categories: commercial, home, and miniature. Fenway has traditionally allocated overhead costs to the three products using the companywide allocation base of direct labor hours. The company recently implemented an ABC system when it installed computer-controlled assembly stations that rendered the traditional costing system ineffective. In implementing the ABC system, the company identified the following activity cost pools and cost drivers:

Additional data for each of the product lines follow:

Required
Round your figures to two decimal points.
a. Determine the total cost and cost per unit for each product line, assuming that overhead costs are allocated to each product line using direct labor hours as a companywide allocation base. Also determine the combined cost of all three product lines.
b. Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Determine the combined cost of all three product lines.
c. Explain why the combined total cost computed in Requirements a and b is the same amount. Given that the combined cost is the same using either allocation method, why is an ABC system with many different allocation rates more accurate than a traditional system with a single companywide overhead rate?

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Types of Costs Category Unit Batch Total Pooled Cost $360,000 194,400 105,600 Cost Driver Indirect labor wages, supplies, factory utilities, Machine hours Number of production orders Time spent by research department machine maintenance Materials handling, inventory storage, labor for setups, packaging, labeling and shipping, scheduling Research and development Rent, general utilities, maintenance, facility depreciation, Facility 300,000 Square footage admin. salaries Commercial Home Miniature 12.00/unit $9.00/hour Direct materials cost Direct labor cost Number of labor hours Number of machine hours Number of production orders Research and development time Number of units Square footage $25.00/unit $10.00/hour $8.00/hour 10,000 15,000 20.000