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Finch Electronics produces video games in three market categories: commercial, home, and miniature. Finch has traditionally allocated overhead costs to the three products using the

Finch Electronics produces video games in three market categories: commercial, home, and miniature. Finch 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 $ 720,000 Indirect labor wages, supplies, factory utilities, machine maintenance Machine hours
Batch 645,100 Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling Number of production orders
Product 211,100 Research and development Time spent by research department
Facility 429,300 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 $ 35.80 /unit $ 24.50 /unit $ 29.30 /unit
Direct labor cost $ 14.90 /hour $ 14.90 /hour $ 18.50 /hour
Number of labor hours 5,000 11,800 2,300 19,100
Number of machine hours 16,000 45,000 11,000 72,000
Number of production orders 280 2,000 220 2,500
Research and development time 10 % 19 % 71 % 100 %
Number of units 14,000 40,000 13,000 67,000
Square footage 21,000 48,000 12,000 81,000

Required

  1. 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.

  2. 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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