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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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