Exhibit 9.13 Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility E Cost Driver Volume D A 1 Sport 2 Activity Cost Driver Pro Total 3 Assembly building Assembling 4 Machine-hours 6,000 30,000 36,000 Setting up machines Handling material 5 Setup hours 40 400 440 Production runs 8 40 48 6 7 Packaging building Inspecting and packing Shipping 60,000 22,800 82,800 8 Direct labor-hours 9 Number of shipments 100 200 300 10 Exhibit 9.14 Third Quarter Overhead Cost Data-CenterPoint Manufacturing Facility H A B C E G Overhead Cost Driver Cost Driver 1 2 Building and Activity Cost Volume Rate 3 Assembly building 30 per machine-hour 900 per sctup hour $3,000 per production run $1,080,000 4 Assembling 36,000 machine-hours Setting up machines Handling material 5 396,000 440 setup hours 144,000 48 production runs 6 7 Total Assembly building overhead 1,620,000 9 Packaging building S 414,000+ 10 Inspecting and packing 82,800 direct labor-hours 5 per direct labor-hour $1,320 per shipment 300 shipments Shipping Total Packaging building overhead 396,000 11 S 810,000 12 13 Total overhead S2.430,000 14 Cost Flow Diagram, Activity-Based Costing System-CenterPoint Exhibit 9.15 Manufacturing Facility Manufacturing Direct costs overhead Directly assigned Assembly building Packaging building Assembling Setting up Handling material Inspecting and packaging Shipping machines cameras Direct labor Machine- Setup Runs Shipments hours hours hours Sport Pro Exhibit 9.16 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility B C Sport Pro 2 $ 2.400,000 $1,500,000 3 Direct material 4 Direct labor $ 750,000 $ 600,000 5 Assembly 6 Packaging 990,000 360,000 $ 960,000 $ 3,360,000 $1,740,000 7 Total direct labor 8 Direct costs 9 Overhcad $3,240,000 Asscmbly building Asscmbling (@ $ 30 per MH) Selting up machines (@ $ 900 per setup hour) Handling material (@ $ 3,000 per run) Packaging building Inspecting and packing (@$ 5 per direct labor-hour) Shipping (@ $ 1,320 per shipment) 10 $180,000 11 900,000 12 36,000 360,000 13 24,000 120,000 14 15 300,000 114,000 16 132,000 264.000 $ 1,758,000 $ 5,118,000 17 Total ABC overhead 672,000 $ 3,912,000 18 Total ABC cost 19 Number of units 100,000 40,000 20 Unit cost 39.12 127.95 21 Page 381 9-37. Activity-Based Costing LO 9-4, 5) 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 100,000 units of the Sport model and 40,000 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 25 percent Required a. Refer to Exhibits 9.13 through 9.16. 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 (the text example) except for the number of setup hours. Assume the cost of a setup hour remains at $900 b. Assume that CenterPoint had used machine-hours and a department allocation method to allocate its overhead and that the setup-hour rate for the first quarter is $900. Could Tom have made the cost reductions that he planned? What are the advantages and disadvantages of activity-based costing compared to the traditional volume-based allocation methods? Exhibit 9.13 Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility E Cost Driver Volume D A 1 Sport 2 Activity Cost Driver Pro Total 3 Assembly building Assembling 4 Machine-hours 6,000 30,000 36,000 Setting up machines Handling material 5 Setup hours 40 400 440 Production runs 8 40 48 6 7 Packaging building Inspecting and packing Shipping 60,000 22,800 82,800 8 Direct labor-hours 9 Number of shipments 100 200 300 10 Exhibit 9.14 Third Quarter Overhead Cost Data-CenterPoint Manufacturing Facility H A B C E G Overhead Cost Driver Cost Driver 1 2 Building and Activity Cost Volume Rate 3 Assembly building 30 per machine-hour 900 per sctup hour $3,000 per production run $1,080,000 4 Assembling 36,000 machine-hours Setting up machines Handling material 5 396,000 440 setup hours 144,000 48 production runs 6 7 Total Assembly building overhead 1,620,000 9 Packaging building S 414,000+ 10 Inspecting and packing 82,800 direct labor-hours 5 per direct labor-hour $1,320 per shipment 300 shipments Shipping Total Packaging building overhead 396,000 11 S 810,000 12 13 Total overhead S2.430,000 14 Cost Flow Diagram, Activity-Based Costing System-CenterPoint Exhibit 9.15 Manufacturing Facility Manufacturing Direct costs overhead Directly assigned Assembly building Packaging building Assembling Setting up Handling material Inspecting and packaging Shipping machines cameras Direct labor Machine- Setup Runs Shipments hours hours hours Sport Pro Exhibit 9.16 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility B C Sport Pro 2 $ 2.400,000 $1,500,000 3 Direct material 4 Direct labor $ 750,000 $ 600,000 5 Assembly 6 Packaging 990,000 360,000 $ 960,000 $ 3,360,000 $1,740,000 7 Total direct labor 8 Direct costs 9 Overhcad $3,240,000 Asscmbly building Asscmbling (@ $ 30 per MH) Selting up machines (@ $ 900 per setup hour) Handling material (@ $ 3,000 per run) Packaging building Inspecting and packing (@$ 5 per direct labor-hour) Shipping (@ $ 1,320 per shipment) 10 $180,000 11 900,000 12 36,000 360,000 13 24,000 120,000 14 15 300,000 114,000 16 132,000 264.000 $ 1,758,000 $ 5,118,000 17 Total ABC overhead 672,000 $ 3,912,000 18 Total ABC cost 19 Number of units 100,000 40,000 20 Unit cost 39.12 127.95 21 Page 381 9-37. Activity-Based Costing LO 9-4, 5) 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 100,000 units of the Sport model and 40,000 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 25 percent Required a. Refer to Exhibits 9.13 through 9.16. 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 (the text example) except for the number of setup hours. Assume the cost of a setup hour remains at $900 b. Assume that CenterPoint had used machine-hours and a department allocation method to allocate its overhead and that the setup-hour rate for the first quarter is $900. Could Tom have made the cost reductions that he planned? What are the advantages and disadvantages of activity-based costing compared to the traditional volume-based allocation methods