Question
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
Sport | ? |
Pro | ? |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started