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MovieTime Corporation produces furniture and fixtures for home theatre installations. John Jones, the owner of the company, recognized a trend in home theatre installations starting about three years ago and began working with local design firms and home builders to offer affordable yet high-quality furnishings for new construction and renovation markets. The company's most popular product is a leather upholstered recliner with a cup holder and snack tray built into each chair's arms. Last year, John decided to implement an ABC system to better understand the overall cost structure and to ensure he was charging competitive prices that would also allow the firm to remain profitable over the longer term. The ABC system is designed to allow direct material and direct labour to be traced directly to each of the company's four main products. The system also includes four activity cost pools for overhead: Quality Control and Inspection, Order Processing, Delivery and Installation, and other. The activity measures are units produced for Quality Control and Inspection, number of orders for Order Processing, and number of deliveries for Delivery and Installation. The Other cost pool has no activity measure. The following costs will be assigned using the ABC system: $ Indirect factory salaries Delivery crew wages expense Delivery vehicle operating expenses and depreciation Procurement and order processing salaries expense Office expenses Other administrative expenses 520,000 140,000 95,000 103,000 25,000 225,000 Total cost $1,108,000 The distribution of resource consumption across the activity cost pools is as follows: Quality Control and Inspection 50% 07 Delivery and Order Installation Processing 25% 20% 75% 10% Other 5% 15% Totals 100% 100% 0% 80% 107 10% 100% Indirect factory salaries Delivery crew wages expense Delivery vehicle operating expenses and depreciation Procurement and order processing salaries and expenses Office expenses Other administrative expenses 10% 15% 15% 10% 15% 5% 65% 35% 40% 15% 35% 40% 100% 100% 100% The ABC system at MovieTime contains the following activity cost pools and activity rates this year: Activity Quality control and inspection Delivery and installation Order processing Other Total Activity 4,800 units produced 1,200 deliveries 920 orders processed None Activity data have also been supplied for the leather recliner product line: Activity Quality control and inspection Delivery and installation Order processing Total Activity for the Leather Recliner Product Line 1,200 units produced 300 deliveries 230 orders processed Required: 1. Compute the activity rates for the ABC system. Total Cost Activity Cost Pools Quality control and inspection Delivery and installation Order processing Total Activity Units produced deliveries completed Orders processed Activity Rate Per unit Per delivery Per order 2. Determine the total overhead cost that would be assigned to the leather recliner product line using the ABC system. Total overhead cost
