13) Activity-based costing and product cost distortion

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 (dlh). 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 Setups	Direct Labor 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.

Single plantwide factory overhead rate $______________ per dlh

Points:

Cell phones	$________ per unit
Tablet PCs	$________per unit

B). Determine the activity rate for each activity. Enter these rates in the Activity Rate column.

Cell Phones
Activity	Activity-Base Usage	Activity Rate	Activity Cost
Setup	_______________ _______	________________ _______	$_________________
Production Support	________________ _______	________________ _______	__________________
Total			$_________________
Units			_________________
Activity cost per unit			$_________________

C). Use the activity rates in (A) to determine the total and per-unit activity costs associated with each product.

Tablets
Activity	Activity-Base Usage	Activity Rate	Activity Cost
Setup	_______________ _______	________________ _______	$_________________
Production Support	________________ _______	________________ _______	__________________
Total			$_________________
Units			_________________
Activity cost per unit			$_________________