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 113,000 units of the Sport model and 46,500 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 22 percent Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Sport Cost Driver Assembly building Assembling Machine-hours 7,380 31,300 38,600 Setting up machines Setup hours Handling material Production runs Packaging building Inspecting and packing Direct labor-hours 65,200 25,400 98,600 Shipping Number of shipments Pro Total 53 21 530 53 583 74 113 226 339 Third Quarter Unit Cost Report, Activity Based Costing-CenterPoint Manufacturing Facility Sport Pro Direct material $1,513,000 $2,426,000 Direct labor Assembly $763,000 $ 626,000 Packaging 1,603,000 386,000 Total direct labor $1,766,000 $1,012,000 Direct costs $3,279,000 $3,438,000 Overhead Assembly building Assembling (@$30 per MH) 219,000 $ 939,000 Setting up machine (@$900 per setup hour) 47,700 477,000 Handling material (@ $3,000 per run) 63,000 159,000 Packaging building Inspecting and packing (@$5 per direct labor-hour) 326,000 127,000 Shipping (o $1,320 per shipment) 149, 160 298, 320 Total ABC overhead $ 804,860 $2,000, 320 Total ABC cost $4,083,860 $5,438,320 Number of units 113,000 46,500 Unit cost 36.14 116.95 Third Quarter Unit Cost Report, Activity-Based Costing--CenterPoint Manufacturing Facility Sport Pro Direct material $1,513,000 $2,426,000 Direct labor Assembly $763,000 $ 626,000 Packaging 1,003,000 386,000 Total direct labor $1,766,000 $1,812,800 Direct costs $3,279,800 $3,438,000 Overhead Assembly building Assembling (@$30 per MH) $ 219,000 $ 939,000 Setting up machine (@ $900 per setup hour) 47,780 477,000 Handling material (@$3,000 per run) 63,000 159,000 Packaging building Inspecting and packing (@ $5 per direct labor-hour) 326,000 127,000 Shipping @ $1,320 per shipment) 149, 160 298,320 Total ABC overhead $804,860 $2,800,320 Total ABC cost $4,083, 860 $5,438,320 Number of units 113,000 46,500 Unit cost 36.14 $ 116.95 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 o a setup hour remains at $900. Model Total ABC Overhead Sport Pro
