After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 109,000 units of the Sport model and 44,500 units of the Pro model in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the Sport and the Pro products by one-third. Cost Drivers and Cost Driver Volumes—CenterPoint Manufacturing Facility Activity Cost Driver Cost Driver Volume Sport Pro Total Assembly building Assembling Machine-hours 6,900 30,900 37,800 Setting up machines Setup hours 49 490 539 Handling material Production runs 17 49 66 Packaging building Inspecting and packing Direct labor-hours 63,600 24,600 88,200 Shipping Number of shipments 109 218 327 Third Quarter Unit Cost Report, Activity-Based Costing—CenterPoint Manufacturing Facility Sport Pro Direct material $ 1,509,000 $ 2,418,000 Direct labor Assembly $ 759,000 $ 618,000 Packaging 999,000 378,000 Total direct labor $ 1,758,000 $ 996,000 Direct costs $ 3,267,000 $ 3,414,000 Overhead Assembly building Assembling (@ $30 per MH) $ 207,000 $ 927,000 Setting up machines (@ $900 per setup hour) 44,100 441,000 Handling material (@ $3,000 per run) 51,000 147,000 Packaging building Inspecting and packing (@ $5 per direct labor-hour) 318,000 123,000 Shipping (@ $1,320 per shipment) 143,880 287,760 Total ABC overhead $ 763,980 $ 1,925,760 Total ABC cost $ 4,030,980 $ 5,339,760 Number of units 109,000 44,500 Unit cost $ 36.98 $ 119.99 Required: Compute the amount of overhead allocated to the Sport and the Pro drones for the first quarter using activity-based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900.
After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 109,000 units of the Sport model and 44,500 units of the Pro model in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the Sport and the Pro products by one-third. Cost Drivers and Cost Driver Volumes—CenterPoint Manufacturing Facility Activity Cost Driver Cost Driver Volume Sport Pro Total Assembly building Assembling Machine-hours 6,900 30,900 37,800 Setting up machines Setup hours 49 490 539 Handling material Production runs 17 49 66 Packaging building Inspecting and packing Direct labor-hours 63,600 24,600 88,200 Shipping Number of shipments 109 218 327 Third Quarter Unit Cost Report, Activity-Based Costing—CenterPoint Manufacturing Facility Sport Pro Direct material $ 1,509,000 $ 2,418,000 Direct labor Assembly $ 759,000 $ 618,000 Packaging 999,000 378,000 Total direct labor $ 1,758,000 $ 996,000 Direct costs $ 3,267,000 $ 3,414,000 Overhead Assembly building Assembling (@ $30 per MH) $ 207,000 $ 927,000 Setting up machines (@ $900 per setup hour) 44,100 441,000 Handling material (@ $3,000 per run) 51,000 147,000 Packaging building Inspecting and packing (@ $5 per direct labor-hour) 318,000 123,000 Shipping (@ $1,320 per shipment) 143,880 287,760 Total ABC overhead $ 763,980 $ 1,925,760 Total ABC cost $ 4,030,980 $ 5,339,760 Number of units 109,000 44,500 Unit cost $ 36.98 $ 119.99 Required: Compute the amount of overhead allocated to the Sport and the Pro drones for the first quarter using activity-based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 109,000 units of the Sport model and 44,500 units of the Pro model in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the Sport and the Pro products by one-third.
Cost Drivers and Cost Driver Volumes—CenterPoint Manufacturing Facility
| Activity | Cost Driver | Cost Driver Volume | ||
|---|---|---|---|---|
| Sport | Pro | Total | ||
| Assembly building | ||||
| Assembling | Machine-hours | 6,900 | 30,900 | 37,800 |
| Setting up machines | Setup hours | 49 | 490 | 539 |
| Handling material | Production runs | 17 | 49 | 66 |
| Packaging building | ||||
| Inspecting and packing | Direct labor-hours | 63,600 | 24,600 | 88,200 |
| Shipping | Number of shipments | 109 | 218 | 327 |
Third Quarter Unit Cost Report, Activity-Based Costing—CenterPoint Manufacturing Facility
| Sport | Pro | |
|---|---|---|
| Direct material | $ 1,509,000 | $ 2,418,000 |
| Direct labor | ||
| Assembly | $ 759,000 | $ 618,000 |
| Packaging | 999,000 | 378,000 |
| Total direct labor | $ 1,758,000 | $ 996,000 |
| Direct costs | $ 3,267,000 | $ 3,414,000 |
| Assembly building | ||
| Assembling (@ $30 per MH) | $ 207,000 | $ 927,000 |
| Setting up machines (@ $900 per setup hour) | 44,100 | 441,000 |
| Handling material (@ $3,000 per run) | 51,000 | 147,000 |
| Packaging building | ||
| Inspecting and packing (@ $5 per direct labor-hour) | 318,000 | 123,000 |
| Shipping (@ $1,320 per shipment) | 143,880 | 287,760 |
| Total ABC overhead | $ 763,980 | $ 1,925,760 |
| Total ABC cost | $ 4,030,980 | $ 5,339,760 |
| Number of units | 109,000 | 44,500 |
| Unit cost | $ 36.98 | $ 119.99 |
Required:
-
Compute the amount of overhead allocated to the Sport and the Pro drones for the first quarter using activity-based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900.
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