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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 107,000 units of the Sport model and 43,500 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 32 percent. Pro Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Total Assembly building Assembling Machine-hours 6,700 30,700 37,400 Setting up machines Setup hours 47 470 517 Handling material Production runs 15 47 62 Packaging building Inspecting and packing Direct labor-hours 62,800 24,200 87,000 Shipping Number of shipments 107 214 321 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport Pro Direct material $1,507,000 $2,414,000 Direct labor Assembly $ 757,000 $ 614,000 Packaging 997,000 374,000 Total direct labor $1,754,000 $ 988,000 Direct costs $3,261,000 $3,402,000 Overhead Assembly building Assembling (@ $30 per MH) $ 201,000 $ 921,000 Setting up machine (@ $900 per setup hour) 42,300 423,000 Handling material (@ $3,000 per run) 45,000 141,000 Packaging building Inspecting and packing (@ $5 per direct labor-hour) 314,000 121,000 Shipping @ $1,320 per shipment) 141, 240 282,480 Total ABC overhead $ 743, 540 $1,888,480 Total ABC cost $4,004,540 $5,290,480 Number of units 107,000 43,500 Unit cost 37.43 $ 121.62 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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