Question
Clairepoint Medical Devices, Incorporated (CMDI) makes three types of diagnostic devices. For internal purposes, these models are referred to as Alpha, Beta, and Gamma, respectively.
Clairepoint Medical Devices, Incorporated (CMDI) makes three types of diagnostic devices. For internal purposes, these models are referred to as Alpha, Beta, and Gamma, respectively. Although they are designed to provide the same information, the models differ by the quality of the materials and their electronic capabilities. The Alpha model is a relatively simple device that requires more manual data entry and retrieval. The Gamma model automates much of the interface with the user. As a purveyor of certain medical devices, including these models, CMDI requires certification for each model, regardless of the number of units sold.
CMDI computes product costs by allocating all manufacturing overhead to products based on direct labor costs. After attending a seminar on financial analysis, the chief marketing officer (CMO) of CMDI asked the plant controller about ABC and whether it could be used for the costing of these three models. To respond to the request, the controller collected the following information for the upcoming period:
Activity | Recommended Cost Driver | Estimated Cost |
---|---|---|
Obtaining certificates | Number of certificates | $ 105,000 |
Handling materials | Direct materials cost | 204,750 |
Setting up | Production runs | 155,500 |
Engineering | Number of units | 320,000 |
Assuring quality | Number of inspections | 104,000 |
Shipping | Production runs | 220,000 |
$ 1,109,250 |
Product-line information for the upcoming period follows:
Alpha | Beta | Gamma | |
---|---|---|---|
Number of units produced | 2,500 | 1,000 | 500 |
Direct materials cost (total) | $ 212,500 | $ 145,000 | $ 130,000 |
Direct labor cost (total) | $ 262,500 | $ 105,000 | $ 67,500 |
Number of certificates | 1 | 1 | 1 |
Number of production runs | 5 | 5 | 10 |
Number of inspections | 2 | 4 | 10 |
(Static) Activity-Based Costing: Analysis and Visualization
Required:
Compute the unit product costs for the upcoming period using the current system, which allocates overhead based on direct labor costs.
Compute the unit product costs for the upcoming period based on an ABC system using the activities and cost drivers identified by the controller.
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