After reviewing the new activity based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability He plans to produce 119,000 units of the Sport model and 49,500 units of the Pro model in the first quarter He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the Sport and the Pro products by 16 percent Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine hours 7,900 31,900 39,800 Setting up machines Setup hours 59 590 649 Handling material Production runs 27 59 86 Packaging building Inspecting and packing Direct labor hours 67,600 26,600 94,200 Shipping Number of shipments 119 238 357 Third Quarter Unit Cost Report, Activity Based CostingCenterPoint Manufacturing Facility Sport Pro Direct material $ 1,519,000 $ 2,438,000 Direct labor Assembly $ 769,000 $ 638,000 Packaging 1,009,000 398,000 Total direct labor $ 1,778,000 $ 1,036,000 Direct costs $ 3,297,000 $ 3,474,000 Overhead Assembly building Assembling ( $30 per MH) $ 237,000 $ 957,000 Setting up machine ( $900 per setup hour) 53,100 531,000 Handling material ( $3,000 per run) 81,000 177,000 Packaging building Inspecting and packing ( $5 per direct labor hour) 338,000 133,000 Shipping ( $1,320 per shipment) 157,080 314,160 Total ABC overhead $ 866,180 $ 2,112,160 Total ABC cost $ 4,163,180 $ 5,586,160 Number of units 119,000 49,500 Unit cost $ 34 98 $ 112 85 Required a Compute the amount of overhead allocated to the Sport and the Pro drones for the first quarter using activity based costing Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours Assume the cost of a setup hour remains at $900

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 30, 2024

After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he

After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 119,000 units of the Sport model and 49,500 units of the Pro model in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the Sport and the Pro products by 16 percent.

Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility

		Cost Driver Volume
Activity	Cost Driver	Sport	Pro	Total
Assembly building
Assembling	Machine-hours	7,900	31,900	39,800
Setting up machines	Setup hours	59	590	649
Handling material	Production runs	27	59	86
Packaging building
Inspecting and packing	Direct labor-hours	67,600	26,600	94,200
Shipping	Number of shipments	119	238	357

Third Quarter Unit Cost Report, Activity-Based CostingCenterPoint Manufacturing Facility

	Sport		Pro
Direct material	$	1,519,000	$	2,438,000
Direct labor
Assembly	$	769,000	$	638,000
Packaging		1,009,000		398,000
Total direct labor	$	1,778,000	$	1,036,000
Direct costs	$	3,297,000	$	3,474,000
Overhead
Assembly building
Assembling (@ $30 per MH)	$	237,000	$	957,000
Setting up machine (@ $900 per setup hour)		53,100		531,000
Handling material (@ $3,000 per run)		81,000		177,000
Packaging building
Inspecting and packing (@ $5 per direct labor-hour)		338,000		133,000
Shipping (@ $1,320 per shipment)		157,080		314,160
Total ABC overhead	$	866,180	$	2,112,160
Total ABC cost	$	4,163,180	$	5,586,160
Number of units		119,000		49,500
Unit cost	$	34.98	$	112.85

Required:

a. Compute the amount of overhead allocated to the Sport and the Pro drones for the first quarter using activity-based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900.