Activity-based costing and product cost distortion OBJ. 2, 4 Digital Storage Concept Inc. is considering a change to activity-based product costing.

The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 3,750 direct labor hours.

The total indirect labor is budgeted to be $375,000.

Time records from indirect labor employees revealed that they spent 40% of their time setting up production runs and 60% of their time supporting actual production.

The following information about cell phones and tablet PCs was determined from the corporate records:

Number of Direct Labor Setups Hours Units Cell phones 600 1,875 93,750 Tablet PCs 1,400 1,875 93,750 _____ _____ _______ Total 2,000 3,750 187,500 _____ _____ _____ _____ _______ _______

a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base.

b. Determine the budgeted activity costs and activity rates for the indirect labor under activitybased costing. Assume two activities—one for setup and the other for production support.

c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing.

d. Why are the per-unit allocated costs in

(a) different from the per-unit activity cost assigned to the products in (c)?