Homework $-$ Chapter $18$

Activity$-$based costing and product cost distortion

Crenshaw Inc. is considering a change to activity$-$based product costing. The company produces two products, cell phones and tablet PCs$,$ in a single production department. The production department is estimated to require $4,000$ direct labor hours. The total indirect labor is budgeted to be $$729,600.$

Time records from indirect labor employees revealed that they spent $40\%$ of their time setting up production runs and $60\%$ of their time supporting actual production.

The following information about cell phones and tablet PCs was determined from the corporate records:

$\backslash$table$[[,\backslash$table$[[$Number of$],[$Setups$]],\backslash$table$[[$Direct Labor$],[$Hours$]],$Units$],[$Cell phones,$500,2,000,96,000],[$Tablet PCs$,1,100,2,000,96,000],[$Total$,1,600,4,000,192,000]]$

If required, round your answers to the nearest cent.

a$.$ Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base.

Cell phones: $$ per unit

Tablet PCs $$ per unit

b$.$ Determine the budgeted activity costs and activity rates for the indirect labor under activity$-$based costing. Assume two activities$-$one for setup and the other for production support.

$\backslash$table$[[,$Budgeted Activity Cost,Activity Rate,,$],[$Setup$,$$$,,$$$,$per setup$],[$Production support,$$,,$$$,$ per direct labor hour$]]$

c$.$ Determine the activity cost per unit for indirect labor allocated to each product under activity$-$based costing Cell phones: $$ per unit

Tablet PCs $$ per unit

d$.$ Why are the per$-$unit allocated costs in $($a$)$ different from the per$-$unit activity cost assigned to the products in $($c$)?$

The per$-$unit indirect labor costs in $($a$)$ are distorted because setup activity $$ is consumed by the product