Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting

Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren

23rd Edition

978-0324662962

More Books

Students also viewed these Accounting questions