The manufacturing division of an electronics company usesactivity-based costing. The company has identified three activitiesand the related cost drivers for indirect production costs.
Activity CostDriver
Activity1 Directmaterials cost
Activity2 Directlabor cost
Activity3 Kilowatthours
Three types of products are produced. Direct costs andcost-driver activity for each product for a month are asfollows:
ProductA ProductB ProductC
Direct materialscost $75,000 $50,000 $125,000
Direct laborcost $6,000 $1,000 $3,000
Direct laborhours 1,000 500 1,500
Kilowatthours 150,000 200,000 150,000
Indirect production costs for the month are as follows:
Activity 1 $12,000 Activity 2 20,000 Activity 3 16,000 Total$48,000
Required:
A) Compute the indirect production costs allocated to eachproduct using the ABC system.
B) Compute the indirect production costs allocated to eachproduct using a traditional costing system.
Assume indirect production costs are allocated to each productusing the cost driver: direct labor hours.
The manufacturing division of an electronics company usesactivity-based costing. The company has identified three activitiesand the related cost drivers for indirect production costs.
Activity CostDriver
Activity1 Directmaterials cost
Activity2 Directlabor cost
Activity3 Kilowatthours
Three types of products are produced. Direct costs andcost-driver activity for each product for a month are asfollows:
ProductA ProductB ProductC
Direct materialscost $75,000 $50,000 $125,000
Direct laborcost $6,000 $1,000 $3,000
Direct laborhours 1,000 500 1,500
Kilowatthours 150,000 200,000 150,000
Indirect production costs for the month are as follows:
Activity 1 $12,000 Activity 2 20,000 Activity 3 16,000 Total$48,000
Required:
A) Compute the indirect production costs allocated to eachproduct using the ABC system.
B) Compute the indirect production costs allocated to eachproduct using a traditional costing system.
Assume indirect production costs are allocated to each productusing the cost driver: direct labor hours.
Related questions
Problem 5-14A Comparing an ABC system with a traditional costingsystem LO 5-1, 5-2, 5-3
Richardson Electronics produces video games in three marketcategories: commercial, home, and miniature. Richardson hastraditionally allocated overhead costs to the three products usingthe companywide allocation base of direct labor hours. The companyrecently implemented an ABC system when it installedcomputer-controlled assembly stations that rendered the traditionalcosting system ineffective. In implementing the ABC system, thecompany identified the following activity cost pools and costdrivers.
| Category | Total Pooled Cost | Types ofCosts | CostDriver | ||
| Unit | $ | 697,000 | Indirect labor wages, supplies, factory utilities, | Machine hours | |
| Batch | 366,100 | Materials handling, inventory storage, labor for setups, | Number ofproduction orders | ||
| Product | 211,300 | Research anddevelopment | Time spent byresearch department | ||
| Facility | 510,400 | Rent, generalutilities, maintenance, facility depreciation, admin. salaries | Square footage | ||
| Additional datafor each of the product lines follow. |
| Commercial | Home | Miniature | Total | |||||||||
| Direct materials cost | $ | 36.50 | /unit | $ | 24.80 | /unit | $ | 30.50 | /unit | â | ||
| Direct labor cost | $ | 14.70 | /hour | $ | 14.70 | /hour | $ | 18.40 | /hour | â | ||
| Number of labor hours | 5,300 | 11,800 | 1,300 | 18,400 | ||||||||
| Number of machine hours | 18,000 | 48,000 | 16,000 | 82,000 | ||||||||
| Number of production orders | 280 | 2,200 | 320 | 2,800 | ||||||||
| Research and development time | 12 | % | 23 | % | 65 | % | 100 | % | ||||
| Number of units | 16,000 | 46,000 | 15,000 | 77,000 | ||||||||
| Square footage | 19,000 | 46,000 | 23,000 | 88,000 | ||||||||
Required: a. Determine the total cost and cost per unit for eachproduct line, assuming that overhead costs are allocated to eachproduct line using direct labor hours as a companywide allocationbase. Also determine the combined cost of all three product lines.(Round "Cost per unit" to 2 decimal places.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
b. Determine the total cost and cost per unit for each productline, assuming that an ABC system is used to allocate overheadcosts. Determine the combined cost of all three product lines.(Round intermediate calculations and "Cost per unit" answers to 2decimal places. Round "Total cost" to the nearest dollaramount.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
