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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 107,000 units of the Sport model and 43,500 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

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 107,000 units of the Sport model and 43,500 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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 107,000 units of the Sport model and 43,500 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 Sport Cost Driver Volume Pro Total Assembly building Assembling Setting up machines Handling material Packaging building Inspecting and packing Shipping Machine-hours Setup hours Production runs Direct labor-hours Number of shipments 6,700 47 15 30,700 470 47 37,400 517 62 62,800 24,200 87,000 107 214 321 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport $ 1,507,000 Direct material Direct labor Assembly Packaging Total direct labor Direct costs Overhead Assembly building $ 757,000 997,000 $ 1,754,000 $ 3,261,000 Pro $ 2,414,000 $ 614,000 374,000 $ 988,000 $ 3,402,000 Assembling (@ $30 per MH) Setting up machines (@ $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 Required: 45,000 $ 201,000 42,300 314,000 141,240 $ 743,540 $ 4,004,540 $ 37.43 $ 921,000 423,000 141,000 121,000 282,480 $ 1,888,480 $ 5,290,480 43,500 $ 121.62 107,000 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
Transcribed Image Text: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 107,000 units of the Sport model and 43,500 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 Sport Cost Driver Volume Pro Total Assembly building Assembling Setting up machines Handling material Packaging building Inspecting and packing Shipping Machine-hours Setup hours Production runs Direct labor-hours Number of shipments 6,700 47 15 30,700 470 47 37,400 517 62 62,800 24,200 87,000 107 214 321 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport $ 1,507,000 Direct material Direct labor Assembly Packaging Total direct labor Direct costs Overhead Assembly building $ 757,000 997,000 $ 1,754,000 $ 3,261,000 Pro $ 2,414,000 $ 614,000 374,000 $ 988,000 $ 3,402,000 Assembling (@ $30 per MH) Setting up machines (@ $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 Required: 45,000 $ 201,000 42,300 314,000 141,240 $ 743,540 $ 4,004,540 $ 37.43 $ 921,000 423,000 141,000 121,000 282,480 $ 1,888,480 $ 5,290,480 43,500 $ 121.62 107,000 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
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