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 115,000 units of the Sport model and 47,500 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 20 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine-hours 7,500 Setting up machines Handling material Packaging building Setup hours Production runs 55 23 31,500 550 55 39,000 605 78 Inspecting and packing Shipping Direct labor-hours Number of shipments 66,000 115 25,800 230 91,800 345 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Direct material Direct labor Assembly Packaging Total direct labor Direct costs Sport $1,515,000 $ 765,000 1,005,000 $1,770,000 $3,285,000 Pro $2,430,000 $ 630,000 390,000 $1,020,000 $3,450,000 Overhead Assembly building Assembling (@ $30 per MH) Setting up machine (@ $900 per setup hour) Handling material (@ $3,000 per run) Packaging building Inspecting and packing (@ $5 per direct labor-hour) Shipping (@ $1,320 per shipment) Total ABC overhead Total ABC cost Number of units Unit cost $ 225,000 $ 945,000 49,500 495,000 69,000 165,000 330,000 129,000 151,800 303,600 $ 825,300 $2,037,600 $ $4,110,300 115,000 35.74 $5,487,600 $ 47,500 115.53 Required: a. 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. Model Total ABC Overhead Sport Pro

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 115,000 units of the Sport model and 47,500 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 20 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine-hours 7,500 Setting up machines Handling material Packaging building Setup hours Production runs 55 23 31,500 550 55 39,000 605 78 Inspecting and packing Shipping Direct labor-hours Number of shipments 66,000 115 25,800 230 91,800 345 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Direct material Direct labor Assembly Packaging Total direct labor Direct costs Sport $1,515,000 $ 765,000 1,005,000 $1,770,000 $3,285,000 Pro $2,430,000 $ 630,000 390,000 $1,020,000 $3,450,000 Overhead Assembly building Assembling (@ $30 per MH) Setting up machine (@ $900 per setup hour) Handling material (@ $3,000 per run) Packaging building Inspecting and packing (@ $5 per direct labor-hour) Shipping (@ $1,320 per shipment) Total ABC overhead Total ABC cost Number of units Unit cost $ 225,000 $ 945,000 49,500 495,000 69,000 165,000 330,000 129,000 151,800 303,600 $ 825,300 $2,037,600 $ $4,110,300 115,000 35.74 $5,487,600 $ 47,500 115.53 Required: a. 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. Model Total ABC Overhead Sport Pro

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter15: Lean Accounting And Productivity Measurement

Section: Chapter Questions

Problem 1CE: Anderson Company has the following departmental manufacturing structure for one of its products:...

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