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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
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 117,000 units of the Sport model and 48,500 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 18 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine-hours 7,700 Setting up machines Handling material Packaging building Setup hours Production runs 57 25 31,700 570 57 39,400 627 82 Inspecting and packing Shipping Direct labor-hours Number of shipments 66,800 117 26,200 234 93,000 351 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Direct material Sport $1,517,000 Pro $2,434,000 Direct labor Assembly Packaging Total direct labor Direct costs Overhead Assembly building Assembling (@ $30 per MH) Setting up machine (@ $900 per setup hour) Handling material (@ $3,000 per run) Packaging building Inspecting and packing (@ $5 per direct labor-hour) Shipping (@ $1,320 per shipment) Total ABC overhead Total ABC cost Number of units Unit cost $ 767,000 1,007,000 $1,774,000 $3,291,000 $ 634,000 394,000 $1,028,000 $3,462,000 $ 231,000 $ 951,000 51,300 75,000 513,000 171,000 334,000 131,000 154,440 308,880 $ 845,740 $2,074,880 $4,136,740 117,000 35.36 $5,536,880 48,500 $ 114.16
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