Eyepieces Binoculars Camera Lens

Sales volume (units) 100,000 40,000 28,000

Selling Price $80.00 $160.00 $196.00

TRACEABLE COSTS

Per Unit Direct Costs of Labor & Materials 39.60 55.00 63.50

Per Unit Variable Costs of Licensing & Patent fees 20.40 40.40 48.50

OVERHEAD	?	?	?
Unit Profit Margin After Deducting Traceable Costs and Overhead	?	?	?

Labor hours / unit 2 4 5

Omega management realizes that moving to camera lenses is a major shift in their product and market focus. Plus, they know that factory personnel have complained about the increased coordination required for producing camera lenses. Thus, management wants us to conduct a more detailed study of product costs. We collect the following data.

Eyepieces Binoculars Camera Lens

Sales volume (units)	100,000	40,000	28,000
Machine hours	5,000	19,000	28,000
# of batches	20	70	112
# of Components in each unit of product	8	20	40
# of receiving transactions	1,000	1,250	3,500
# of inspections	160	400	2,240

Analyzing the overhead, you discover the following:

Item	Amount
Labor related	$849,720
Machine related	581,316
Production order costs	411,248
Other Set Up Costs	551,252
Parts administration	286,280
Inventory management	232,950
Inspection and Quality Control Costs	187,234
Total	$3,100,000

You wonder how best to allocate these costs into cost pools. You settle on forming a total of 6 pools.

Pool 1: Labor related costs. Experience shows that for Omega Optical direct labor hours are what drives these costs and causes them to vary.

Pool 2: Machine related costs. These are driven by machine hours

Pool 3: Cost related to executing a production order (this would include production order costs and other set up costs), allocated using the number of batches.

Pool 4: Related to parts administration, which will be allocated based on the number of components in each product multiplied times the number of units

Pool 5: Costs related to inventory management. These costs are allocated based on the number of receiving transactions.

Pool 6: Costs related to inspections and quality control. These costs would be allocated based on the number of inspections.

A. Summarize the total amounts in each of the six cost pools and then divide by the cost driver activity (from the data we collected) to determine the cost per driver unit for each cost pool.

Step 1: Total amounts in the 6 cost pools. In some cases you need to add several numbers. In other cases it is just the given number.

Labor related costs =

Machine related costs =

Production order related costs =

Parts administration =

Total inventory, receiving and shipping =

Inspection & Quality Control =

Step 2: Total use of the cost driver. You need to combine several numbers in most cases.

Labor hours =

Machine hours =

Number of batches =

Parts x Units =

Receiving Transactions =

Number of inspections =

Step 3. Rate per driver unit for Labor related costs (pool 1)

divided by =

Step 3. Rate per driver unit for Machine related costs (pool 2)

divided by =

Step 3: Rate per driver unit for Production order related costs (pool 3)

divided by =

Step 3: Rate per product line for parts administration (pool 4)

divided by =

Step 3: Rate per driver unit for Inventory, receiving, shipping costs (pool 5)

divided by =

Step 3: Rate per product line for inspections (pool 6) : =

divided by =