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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 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 102,000 units of the Sport model and 41,000 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 27 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine-hours 6, 200 30,200 36,400 Setting up machines Setup hours 42 420 462 Handling material Production runs 10 42 52 Packaging building Inspecting and packing Direct labor-hours 60,800 23, 200 84,000 Shipping Number of shipments 102 204 306 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport Pro Direct material $1,502,000 $2,494,000 Direct labor Assembly $ 752,000 $ 604,000 Packaging 992,000 364,000 Total direct labor $1,744,000 $ 968,000 Direct costs $3,246,000 $3,372,000 Overhead Assembly building Assembling (@ $30 per MH) $ 186,000 $ 906,000 Setting up machine (@ $900 per setup hour) 37,800 378,000 Handling material (@ $3,000 per run) 30,000 126,000 Packaging building Inspecting and packing (@ $5 per direct labor-hour) 304,000 116,000 Shipping (@ $1,320 per shipment) 134,640 269, 280 Total ABC overhead $ 692,440 $1,795, 280 Total ABC cost $3,938,440 $5,167,280 Number of units 102,000 41,000 Unit cost $ 38.61 $ 126.03 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. Model Total ABC Overhead Sport Pro
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