Problem 5-14A Comparing an ABC system with a traditional costing system LO 5-1, 5-2, 5-3

Richardson Electronics produces video games in three market categories: commercial, home, and miniature. Richardson 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 $ 697,000 Indirect labor wages, supplies, factory utilities, machine maintenance Machine hours

Batch 366,100 Materials handling, inventory storage, labor for setups, packaging,

labeling and shipping, scheduling Number of production orders

Product 211,300 Research and development Time spent by research department

Facility 510,400 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 $ 36.50 /unit $ 24.80 /unit $ 30.50 /unit

Direct labor cost $ 14.70 /hour $ 14.70 /hour $ 18.40 /hour

Number of labor hours 5,300 11,800 1,300 18,400

Number of machine hours 18,000 48,00 16,000 82,000

Number of production orders 280 2,200 320 2,800

Research and development time 12 % 23 % 65 % 100 %

Number of units 16,000 46,000 15,000 77,000

Square footage 19,000 46,000 23,000 88,000

Required: a. 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. (Round "Cost per unit" to 2 decimal places.)

Type of product Total Cost Cost per Unit

commercial

home

miniature

combined total

b. 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. (Round intermediate calculations and "Cost per unit" answers to 2 decimal places. Round "Total cost" to the nearest dollar amount.)

Type of product Total Cost Cost per Unit

commercial

home

miniature

combined total