Activity-based costing and product cost distortion Crenshaw Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 4,000 direct labor hours. The total indirect labor is budgeted to be $619,200. Time records from indirect labor employees revealed that they spent 60% of their time setting up production runs and 40% of their time supporting actual production. The following information about cell phones and tablet PCs was determined from the corporate records: Number of Direct Labor Setups 1,600 800 Cell phones Tablet PCs Total 2,400 Setup per unit per unit Hours If required, round your answers to the nearest cent. a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base. Cell phones $ Tablet PCs Budgeted Activity Cost 2,000 2,000 4,000 per unit Units b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activities-one for setup and the other for production support. 72,000 72,000 144,000 Activity Rate per setup per direct labor hour Production support c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones $ per unit Tablet PCs
Activity-based costing and product cost distortion Crenshaw Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 4,000 direct labor hours. The total indirect labor is budgeted to be $619,200. Time records from indirect labor employees revealed that they spent 60% of their time setting up production runs and 40% of their time supporting actual production. The following information about cell phones and tablet PCs was determined from the corporate records: Number of Direct Labor Setups 1,600 800 Cell phones Tablet PCs Total 2,400 Setup per unit per unit Hours If required, round your answers to the nearest cent. a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base. Cell phones $ Tablet PCs Budgeted Activity Cost 2,000 2,000 4,000 per unit Units b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activities-one for setup and the other for production support. 72,000 72,000 144,000 Activity Rate per setup per direct labor hour Production support c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones $ per unit Tablet PCs
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Activity-based costing and product cost distortion
Crenshaw Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production
department. The production department is estimated to require 4,000 direct labor hours. The total indirect labor is budgeted to be $619,200.
Time records from indirect labor employees revealed that they spent 60% of their time setting up production runs and 40% of their time supporting actual production.
The following information about cell phones and tablet PCs was determined from the corporate records:
Direct Labor
Number of
Setups
Hours
1,600
Cell phones
Tablet PCs
Total
800
2,400
per unit
per unit
2,000
2,000
4,000
If required, round your answers to the nearest cent.
a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as
the allocation base.
Cell phones $
Tablet PCs
Budgeted Activity Cost
per unit
Units
72,000
72,000
144,000
b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activities-one for setup and the other for
production support.
Activity Rate
Setup
per setup.
Production support
per direct labor hour
c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing.
Cell phones $
per unit
Tablet PCs
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