Question
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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