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VideoPlus, Inc. manufactures two types of DVD players, a deluxe model and a standard model. Annual production is 50,000 units for the deluxe and 20,000

VideoPlus, Inc. manufactures two types of DVD players, a deluxe model and a standard model. Annual production is 50,000 units for the deluxe and 20,000 units for the standard.

Both require 2 hours of direct labor for completion. Therefore, total annual direct labor

hours are 140,000 [2 hrs. (20,000 + 50,000)].

Expected annual manufacturing overhead is $1,050,000. Thus, the predetermined

overhead rate is $7.50 ($1,050,000 140,000) per direct labor hour.

The direct materials cost per unit is $42 (deluxe) and $11 (standard) model.

The direct labor cost is $18 per unit for both the deluxe and standard models.

The company's managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

Activity Cost Pool

Cost Driver

Estimated Overhead

Expected Use of Cost Drivers

Expected Use of Drivers by Product

Standard

Deluxe

Purchasing

Orders

$ 126,000

400

100

300

Receiving

Pounds

30,000

20,000

4,000

16,000

Assembling

Number of parts

444,000

74,000

20,000

54,000

Testing

Number of tests

115,000

23,000

10,000

13,000

Finishing

Units

140,000

70,000

20,000

50,000

Packing and shipping

Pounds

195,000

80,000

18,000

62,000

$1,050,000

Instructions

(f)Comment on:

(1) the comparative overhead cost per unit for the two products under ABC, and

(2) the comparative total costs per unit under traditional costing and ABC.

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