Exhibit 9.14 Third Quarter Overhead Cost Data-CenterPoint Manufacturing Facility Overhead Cost Driver Cost Driver Volume Cost Rate = 2 Building and Activity 3 Assembly building 4 Assembling 5 Setting up machines 6 Handling material 7 Total Assembly building overhead $ 1,080,000 + 396,000 = 144,000 + $ 1.620,000 36.00 machine-hours 440 setup hours 48 production runs $ 30 per machine-hour $ 900 per setup hour $3.000 per production run = = = 9 Packaging building 10 Inspecting and packing 11 Shipping 12 Total Packaging building overhead 13 Total overhead 82.800 direct labor-hours 300 shipments $ 5 per direct labor-hour $ 1.320 per shipment S 414,000 396,000 $ 810,000 S2.430,000 Exhibit 9.15 Cost Flow Diagram, Activity-Based Costing System-CenterPoint Manufacturing Facility Direct costs Manufacturing overhead Directly assigned Assembly building Packaging building Assembling cameras Setting up machines Handling material Inspecting and packaging Shipping Machine- hours Setup hours Runs Direct labor- hours Shipments Sport pro Exhibit 9.16 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport Pro $ 1,500,000 S 2.400,000 $ 750,000 990,000 $ 1,740,000 $ 3,240,000 $ 600,000 360,000 $ 960,000 $3,360,000 $ $ 3 Direct material 4 Direct labor 5 Assembly 6 Packaging 7 Total direct labor 8 Direct costs 9 Overhead 10 Assembly building Assembling (@$ 30 per MH) 12 Selling up machines (@$ 900 per selup hour) 13 Handling material (@ $3,000 per run) 14 Packaging building 15 Inspecting and packing (@$5 per direct labor-hour) 16 Shipping @ $ 1,320 per shipment) 17 Total ABC overhead 18 Total ABC cost 19 Number of units 20 Unit cost 180,000 36,000 24,000 900,000 360,000 120.000 300,000 132,000 $ 672.000 $ 3,912,000 100,000 $ 39.12 114,000 264,000 $ 1,758,000 $5,118.000 40,000 S 127.95 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 Center Point 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 19.16. 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 9.14 Third Quarter Overhead Cost Data-CenterPoint Manufacturing Facility Overhead Cost Driver Cost Driver Volume Cost Rate = 2 Building and Activity 3 Assembly building 4 Assembling 5 Setting up machines 6 Handling material 7 Total Assembly building overhead $ 1,080,000 + 396,000 = 144,000 + $ 1.620,000 36.00 machine-hours 440 setup hours 48 production runs $ 30 per machine-hour $ 900 per setup hour $3.000 per production run = = = 9 Packaging building 10 Inspecting and packing 11 Shipping 12 Total Packaging building overhead 13 Total overhead 82.800 direct labor-hours 300 shipments $ 5 per direct labor-hour $ 1.320 per shipment S 414,000 396,000 $ 810,000 S2.430,000 Exhibit 9.15 Cost Flow Diagram, Activity-Based Costing System-CenterPoint Manufacturing Facility Direct costs Manufacturing overhead Directly assigned Assembly building Packaging building Assembling cameras Setting up machines Handling material Inspecting and packaging Shipping Machine- hours Setup hours Runs Direct labor- hours Shipments Sport pro Exhibit 9.16 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport Pro $ 1,500,000 S 2.400,000 $ 750,000 990,000 $ 1,740,000 $ 3,240,000 $ 600,000 360,000 $ 960,000 $3,360,000 $ $ 3 Direct material 4 Direct labor 5 Assembly 6 Packaging 7 Total direct labor 8 Direct costs 9 Overhead 10 Assembly building Assembling (@$ 30 per MH) 12 Selling up machines (@$ 900 per selup hour) 13 Handling material (@ $3,000 per run) 14 Packaging building 15 Inspecting and packing (@$5 per direct labor-hour) 16 Shipping @ $ 1,320 per shipment) 17 Total ABC overhead 18 Total ABC cost 19 Number of units 20 Unit cost 180,000 36,000 24,000 900,000 360,000 120.000 300,000 132,000 $ 672.000 $ 3,912,000 100,000 $ 39.12 114,000 264,000 $ 1,758,000 $5,118.000 40,000 S 127.95 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 Center Point 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 19.16. 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