Question
Fenway Electronics produces video games in three market categories: commercial, home, and miniature. Fenway has traditionally allocated overhead costs to the three products using the
Fenway Electronics produces video games in three market categories: commercial, home, and miniature. Fenway has traditionally allocated overhead costs to the three products using the companywide allocation base of direct labor hours. The company recently implemented an ABC system when it installed computer-controlled assembly stations that rendered the traditional costing system ineffective. In implementing the ABC system, the company identified the following activity cost pools and cost drivers:
Category Total Pooled Cost Types of Costs Cost Driver Unit $ 360,000
Indirect labor wages, supplies, factory utilities, machine maintenance Machine hours
Batch 194,400
Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling Number of production orders
Product 105,600
Research and development Time spent by research department
Facility 300,000
Rent, general utilities, maintenance, facility depreciation, admin. salaries Square footage
Additional data for each of the product lines follow:
Commercial Home Miniature Total
Direct materials cost $ 25.00 /unit $ 15.00 /unit $ 12.00 /unit
Direct labor cost $ 10.00 /hour $ 8.00 /hour $ 9.00 /hour
Number of labor hours 6,000 12,000 2,000 20,000
Number of machine hours 10,000 45,000 25,000 80,000
Number of production orders 200 2,000 800 3,000
Research and development time 10 % 20 % 70 % 100 %
Number of units 15,000 45,000 14,000 74,000
Square footage 20,000 50,000 30,000 100,000
Required
Determine the total cost and cost per unit for each product line, assuming that overhead costs are allocated to each product line using direct labor hours as a companywide allocation base. Also determine the combined cost of all three product lines.
Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Determine the combined cost of all three product lines.
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