Question
Activity-Based Costing and Product Cost Distortion Memory Disk Inc. is considering a change to activity-based product costing. The company produces two products, CDs and DVDs,
Activity-Based Costing and Product Cost Distortion
Memory Disk Inc. is considering a change to activity-based product costing. The company produces two products, CDs and DVDs, 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 $288,000.
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 CDs and DVDs was determined from the corporate records:
Nuber of Setups | Direct Labor Hours | Units | |
CDs | 1,600 | 2,000 | 60,000 |
DVDs | 800 | 2,000 | 60,000 |
Total | 2,400 | 4,000 | 120,000 |
If required, round your answers to the nearest cent.
a. Determine the indirect labor cost per unit allocated to CDs and DVDs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base.
CDs | $ per unit |
DVDs | $ 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 |
Production support | $ | $ | per direct labor hour |
c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing.
CDs | $ per unit |
DVDs | $ per unit |
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