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

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After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's Center Point 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 Volumes-CenterPoint 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 Direct Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint 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 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. Model Total ABC Overhead Sport Pro

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