The cordless phone manufacturing division of a Denver-basedconsumer electronics company uses activity-based accounting. Forsimplicity, assume that its accountants have identified only thefollowing three activities and related cost drivers for indirectproduction costs.
Activity Cost Driver
Materialshandling Direct-materials cost
Engineering Engineering change notices
Power Kilowatt hours
Three types of cordless phones are produced: Senior, Basic, andDeluxe. Direct costs and cost-driver activity for each product fora recent month are as follows:
Senior BasicDeluxe
Direct-materialscost $25,000 $5,000 $ 125,000
Direct-laborcost $4,000 $1,000 $ 3,000
Kilowatthours 50,000 200,000 150,000
Engineering change notices13 5 2
Indirect production cost for the month was:
Materialshandling $ 8,000
Engineering 20,000
Power 16,000
Total indirect productioncost $ 44,000
Required:
1. Compute the indirect production cost allocated to eachproduct with the activity-based costing system.
2. Suppose all indirect production costs had been allocated toproducts in proportion to their direct-labor costs. Compute theindirect production allocated to each product.
3. In which product costs, those in Requirement 1 or those inRequirement 2, do you have the most confidence? Why?
The cordless phone manufacturing division of a Denver-basedconsumer electronics company uses activity-based accounting. Forsimplicity, assume that its accountants have identified only thefollowing three activities and related cost drivers for indirectproduction costs.
Activity Cost Driver
Materialshandling Direct-materials cost
Engineering Engineering change notices
Power Kilowatt hours
Three types of cordless phones are produced: Senior, Basic, andDeluxe. Direct costs and cost-driver activity for each product fora recent month are as follows:
Senior BasicDeluxe
Direct-materialscost $25,000 $5,000 $ 125,000
Direct-laborcost $4,000 $1,000 $ 3,000
Kilowatthours 50,000 200,000 150,000
Engineering change notices13 5 2
Indirect production cost for the month was:
Materialshandling $ 8,000
Engineering 20,000
Power 16,000
Total indirect productioncost $ 44,000
Required:
1. Compute the indirect production cost allocated to eachproduct with the activity-based costing system.
2. Suppose all indirect production costs had been allocated toproducts in proportion to their direct-labor costs. Compute theindirect production allocated to each product.
3. In which product costs, those in Requirement 1 or those inRequirement 2, do you have the most confidence? Why?
