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 120,000 units of the Sport model and 50,000 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 15 percent Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine hours 8,000 32,000 40,000 Setting up machines Setup hours 60 600 660 Handling material Production runs 28 60 88 Packaging building Inspecting and packing Direct labor hours 68,000 26,800 94,800 Shipping Number of shipments 120 240 360 Third Quarter Unit Cost Report, Activity Based CostingCenterPoint Manufacturing Facility Sport Pro Direct material $ 1,520,000 $ 2,440,000 Direct labor Assembly $ 770,000 $ 640,000 Packaging 1,010,000 400,000 Total direct labor $ 1,780,000 $ 1,040,000 Direct costs $ 3,300,000 $ 3,480,000 Overhead Assembly building Assembling ( $30 per MH) $ 240,000 $ 960,000 Setting up machine ( $900 per setup hour) 54,000 540,000 Handling material ( $3,000 per run) 84,000 180,000 Packaging building Inspecting and packing ( $5 per direct labor hour) 340,000 134,000 Shipping ( $1,320 per shipment) 158,400 316,800 Total ABC overhead $ 876,400 $ 2,130,800 Total ABC cost $ 4,176,400 $ 5,610,800 Number of units 120,000 50,000 Unit cost $ 34 80 $ 112 22 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

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 22, 2024

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 120,000 units of the Sport model and 50,000 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 15 percent.

Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility

		Cost Driver Volume
Activity	Cost Driver	Sport	Pro	Total
Assembly building
Assembling	Machine-hours	8,000	32,000	40,000
Setting up machines	Setup hours	60	600	660
Handling material	Production runs	28	60	88
Packaging building
Inspecting and packing	Direct labor-hours	68,000	26,800	94,800
Shipping	Number of shipments	120	240	360

Third Quarter Unit Cost Report, Activity-Based CostingCenterPoint Manufacturing Facility

	Sport		Pro
Direct material	$	1,520,000	$	2,440,000
Direct labor
Assembly	$	770,000	$	640,000
Packaging		1,010,000		400,000
Total direct labor	$	1,780,000	$	1,040,000
Direct costs	$	3,300,000	$	3,480,000
Overhead
Assembly building
Assembling (@ $30 per MH)	$	240,000	$	960,000
Setting up machine (@ $900 per setup hour)		54,000		540,000
Handling material (@ $3,000 per run)		84,000		180,000
Packaging building
Inspecting and packing (@ $5 per direct labor-hour)		340,000		134,000
Shipping (@ $1,320 per shipment)		158,400		316,800
Total ABC overhead	$	876,400	$	2,130,800
Total ABC cost	$	4,176,400	$	5,610,800
Number of units		120,000		50,000
Unit cost	$	34.80	$	112.22

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