Question
Stuart Electronics produces video games in three market categories: commercial, home, and miniature. Stuart has traditionally allocated overhead costs to the three products using the
Stuart Electronics produces video games in three market categories: commercial, home, and miniature. Stuart 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 | $ | 627,800 | Indirect labor wages, supplies, factory utilities, machine maintenance | Machine hours | ||
| Batch | 520,000 | Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling | Number of production orders | |||
| Product | 210,100 | Research and development | Time spent by research department | |||
| Facility | 514,100 | 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 | $ | 36.70 | /unit | $ | 23.50 | /unit | $ | 29.70 | /unit | ||||||
| Direct labor cost | $ | 14.10 | /hour | $ | 14.10 | /hour | $ | 17.90 | /hour | ||||||
| Number of labor hours | 5,200 | 12,000 | 2,300 | 19,500 | |||||||||||
| Number of machine hours | 11,000 | 40,000 | 22,000 | 73,000 | |||||||||||
| Number of production orders | 240 | 2,200 | 60 | 2,500 | |||||||||||
| Research and development time | 12 | % | 19 | % | 69 | % | 100 | % | |||||||
| Number of units | 11,000 | 46,000 | 10,000 | 67,000 | |||||||||||
| Square footage | 21,000 | 47,000 | 29,000 | 97,000 | |||||||||||
Required
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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.
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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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