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Gibson Electronics produces video games in three market categories: commercial, home, and miniature. Gibson has traditionally allocated overhead costs to the three products using the
Gibson Electronics produces video games in three market categories: commercial, home, and miniature. Gibson 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 Total Pooled Cost Types of Costs Cost Driver Category Unit $750,500 Indirect labor wages, supplies, factory utilities, Machine hours Number of production orders Time spent by research department machine maintenance Batch 691,200 Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling Product 210,800 Research and development 498,200 Rent, general utilities, maintenance, facility Facility Square footage depreciation, admin. salaries Additional data for each of the product lines follow: Commercial $ 35.40/unit 24.60/unit $ 13.90/hour 13.90/hour Miniature 30.20/unit 18.80/hour Home Total Direct materials cost Direct labor cost Number of labor hours Number of machine hours Number of production orders Research and development time Number of units Square footage 6,500 12,000 260 11,500 42,000 1,900 2,100 25,000 640 20,100 79,000 2,800 13% 22% 65% 100% 12,000 24,000 46,000 50,000 11,000 20,000 69,000 94,000
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