Question
4-A4 Activity-Based Costing in an Electronics Company The wireless phone manufacturing division of a consumer electronics company uses activity-based costing. For simplicity, assume that its
4-A4 Activity-Based Costing in an Electronics Company The wireless phone manufacturing division of a consumer electronics company uses activity-based costing. For simplicity, assume that its accountants have identified only the following three activities and related cost drivers for indirect production costs:
ACTIVITY | COST DRIVER |
Materials Handling | Direct-Materials Cost |
Engineering | Engineering Change Notices |
Power | Kilowatt Hours |
Three types of cell phones are produced: Senior, Basic, and Deluxe. Direct costs and cost-driver activity for each product for a recent month are as follows:
Senior | Basic | Deluxe | |
Direct-materials cost | $25,000 | $60,000 | $135,000 |
Direct-labor cost | $14,546 | $3,762 | $6,772 |
Kilowatt hours | 230,000 | 220,000 | 100,000 |
Engineering change notices | 21 | 20 | 69 |
Indirect production costs for the month were as follows:
Materials Handling | $15,400 |
Engineering | $99,000 |
Power | $11,000 |
Total indirect production cost | $125,400 |
1. Compute the indirect production costs allocated to each product with the ABC system.
2. Suppose all indirect production costs had been allocated to products in proportion to their direct-labor costs. Compute the indirect production costs allocated to each product.
3. In which product costs, those in requirement 1 or those in requirement 2, do you have the most confidence? Why?
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