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 115,000 units of the Sport model and 47,500 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 20 percent Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine hours 7,500 31,500 39,000 Setting up machines Setup hours 55 550 605 Handling material Production runs 23 55 78 Packaging building Inspecting and packing Direct labor hours 66,000 25,800 91,800 Shipping Number of shipments 115 230 345 Third Quarter Unit Cost Report, Activity Based CostingCenterPoint Manufacturing Facility Sport Pro Direct material $ 1,515,000 $ 2,430,000 Direct labor Assembly $ 765,000 $ 630,000 Packaging 1,005,000 390,000 Total direct labor $ 1,770,000 $ 1,020,000 Direct costs $ 3,285,000 $ 3,450,000 Overhead Assembly building Assembling ( $30 per MH) $ 225,000 $ 945,000 Setting up machine ( $900 per setup hour) 49,500 495,000 Handling material ( $3,000 per run) 69,000 165,000 Packaging building Inspecting and packing ( $5 per direct labor hour) 330,000 129,000 Shipping ( $1,320 per shipment) 151,800 303,600 Total ABC overhead $ 825,300 $ 2,037,600 Total ABC cost $ 4,110,300 $ 5,487,600 Number of units 115,000 47,500 Unit cost $ 35 74 $ 115 53 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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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 115,000 units of the Sport model and 47,500 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 20 percent.

Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility

		Cost Driver Volume
Activity	Cost Driver	Sport	Pro	Total
Assembly building
Assembling	Machine-hours	7,500	31,500	39,000
Setting up machines	Setup hours	55	550	605
Handling material	Production runs	23	55	78
Packaging building
Inspecting and packing	Direct labor-hours	66,000	25,800	91,800
Shipping	Number of shipments	115	230	345

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

	Sport		Pro
Direct material	$	1,515,000	$	2,430,000
Direct labor
Assembly	$	765,000	$	630,000
Packaging		1,005,000		390,000
Total direct labor	$	1,770,000	$	1,020,000
Direct costs	$	3,285,000	$	3,450,000
Overhead
Assembly building
Assembling (@ $30 per MH)	$	225,000	$	945,000
Setting up machine (@ $900 per setup hour)		49,500		495,000
Handling material (@ $3,000 per run)		69,000		165,000
Packaging building
Inspecting and packing (@ $5 per direct labor-hour)		330,000		129,000
Shipping (@ $1,320 per shipment)		151,800		303,600
Total ABC overhead	$	825,300	$	2,037,600
Total ABC cost	$	4,110,300	$	5,487,600
Number of units		115,000		47,500
Unit cost	$	35.74	$	115.53

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.