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 4,000 direct labor hours. The total indirect labor is budgeted to be $504,000.

Time records from indirect labor employees revealed that they spent 60% of their time setting up production runs and 40% 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			1,600			2,000			72,000
Tablet PCs			800			2,000			72,000
	Total		2,400			4,000			144,000

If required, round your answers to the nearest cent.

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. Cell phones per unit Tablet PCs per unit b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activitiesone for setup and the other for production support. Budgeted Activity Cost Activity Rate Setup per setup per direct labor hour Production support c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones per unit Tablet PCs S per unit