VidPlayers, Inc. manufactures two types of DVD players, a deluxe model and a standard model. The deluxe model is a multi-format progressive-scan DVD player with networking capability, Dolby digital, and DTS decoder. The standard model's primary feature is progressive-scan. Annual production is 20,000 units for the deluxe and 50,000 units for the standard.

Both products require two hours of direct labour for completion. Therefore, total annual direct labour hours are 140,000 or 2 hrs. × (20,000 + 50,000). Expected annual manufacturing overhead is $980,000. Thus, the predetermined overhead rate is $7 or ($980,000 4 140,000) per direct labour hour. The direct materials cost per unit is $11 for the deluxe model and $42 for the standard model. The direct labour cost is $18 per unit for both the deluxe and the standard models.

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

Instructions
(a) Under traditional product costing, calculate the total unit cost of both products. Prepare a simple comparative schedule of the individual costs by product.
(b) Under ABC, prepare a schedule showing the calculations of the activity-based overhead rates (per cost driver).
(c) Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a calculation of overhead cost per unit, rounding to the nearest cent.)
(d) Calculate the total cost per unit for each product under ABC.
(e) Classify each of the activities as a value-added activity or a non-value-added activity.
(f) Comment on
1. The comparative overhead cost per unit for the two products under ABC,
2. The comparative total costs per unit under traditional costing and ABC.

Transcribed Image Text:

Expected Use of Estimated Expected Use iers by Product of Cost Drivers Activity Cost Pool Purchasing Receiving Assembling Testing Finishing Packing and shipping Cost Driver Orders Kilograms Number of parts Number of tests Units Kilograms Overhead $130,000 30,000 Deluxe 150 4,000 20,000 10,000 20,000 17,000 Standard 500 20,000 370,000 23,000 350 16,000 54,000 13,000 50,000 61,000 74,000 115,000 140,000 195,000 $980,000 70,000 78,000