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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 102,000 units of the Sport model and 41,000 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 27 percent.

Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility

Cost Driver Volume

Activity

Cost Driver

Sport

Pro

Total

Assembly building

Assembling

Machine-hours

6,200

30,200

36,400

Setting up machines

Setup hours

42

420

462

Handling material

Production runs

10

42

52

Packaging building

Inspecting and packing

Direct labor-hours

60,800

23,200

84,000

Shipping

Number of shipments

102

204

306

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

Sport

Pro

Direct material

$

1,502,000

$

2,404,000

Direct labor

Assembly

$

752,000

$

604,000

Packaging

992,000

364,000

Total direct labor

$

1,744,000

$

968,000

Direct costs

$

3,246,000

$

3,372,000

Overhead

Assembly building

Assembling (@ $30 per MH)

$

186,000

$

906,000

Setting up machine (@ $900 per setup hour)

37,800

378,000

Handling material (@ $3,000 per run)

30,000

126,000

Packaging building

Inspecting and packing (@ $5 per direct labor-hour)

304,000

116,000

Shipping (@ $1,320 per shipment)

134,640

269,280

Total ABC overhead

$

692,440

$

1,795,280

Total ABC cost

$

3,938,440

$

5,167,280

Number of units

102,000

41,000

Unit cost

$

38.61

$

126.03

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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