Question

Perez Electronics produces video games in three market categories: commercial, home, and miniature. Perez has traditionally allocated overhead costs to the three products using the companywide allocation base of direct labor hours. The company recently implemented an ABC system when it installed computer-controlled assembly stations that rendered the traditional costing system ineffective. In implementing the ABC system, the company identified the following activity cost pools and cost drivers:

    

Category		Total Pooled Cost			Types of Costs	Cost Driver
Unit		$	613,200		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			769,600		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			210,200		Research and development	Time spent by research department
Facility			459,000		Rent, general utilities, maintenance, facility depreciation, admin. salaries	Square footage

     
Additional data for each of the product lines follow:     

	Commercial				Home				Miniature				Total
Direct materials cost	$	37.00	/unit		$	24.40	/unit		$	30.40	/unit			—
Direct labor cost	$	14.40	/hour		$	14.40	/hour		$	17.30	/hour			—
Number of labor hours		5,900				11,100				2,000				19,000
Number of machine hours		14,000				46,000				13,000				73,000
Number of production orders		250				2,000				850				3,100
Research and development time		14	%			21	%			65	%			100	%
Number of units		16,000				46,000				15,000				77,000
Square footage		21,000				50,000				19,000				90,000

    
Required

1. Determine the total cost and cost per unit for each product line, assuming that overhead costs are allocated to each product line using direct labor hours as a companywide allocation base. Also determine the combined cost of all three product lines.

2. Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Determine the combined cost of all three product lines.

(For all requirements, round intermediate calculations for allocation rates to 2 decimal places and all other calculations to the nearest whole dollar. Round "Cost per Unit" to 2 decimal places. Round your answers for "Total Cost" to the nearest whole dollar amount.)

Answer 1

Answer 1.

Predetermined Overhead Rate = ($613200+769600+210200+459000) (Total Overhead) / 19000 DLH

Predetermined Overhead Rate = $108 per DLH

Overhead Assigned	Activity Driver ( in LabourHour) (A)	Plantwide OH Rate (B)	Total Overhead Cost (c=AXB)	Units Produced (D)	OH Cost per Unit (C/D)
Commercial	5900	$108.00	$637,200.00	16000	$39.83
Home	11100	$108.00	$1,198,800.00	46000	$26.06
Miniature	20000	$108.00	$2,160,000.00	15000	$144.00

a. Calculation of Unit Product Cost
As per Company wide Allocation Base
	Commercial	Home	Miniature
Direct Material	$37.00	$24.40	30.4
Direct Labor ($14.40X 5900DLH)/ 16000, ($14.40X 11100 DLH)/46000, (17.30X2000)/15000	$5.31	$3.47	$2.31
Applied Overhead	$39.83	$26.06	$144.00
Product Cost per Unit	$82.14	$53.93	$176.71

Answer 3.
ABC Costing
Activity	Overhead (A)	Cost Driver Quantity (B)		Allocation Rate A/B)
Indirect Labour, Wages , Supplies	$613,200.00	73000	Machine Hour	$8.40	Machine Hour
Material Handling , inventory storage	$769,600.00	3100	No. of Production order	$248.26	No. of Production order
Research & Dev Cost	$210,200.00	100%	Time spent by R& D	$210,200.00	Time spent by R& D
Rent , General Utilities	$459,000.00	90000	SQ Footage	$5.10	SQ Footage
Total	$2,052,000.00

Assigning Overhead Cost Product Model
Using ABC Method
			Commercial		Home		Miniature
	Activity Based Overhead Rate (A)	Driver	Cost Driver Incurred (B)	OH Allocated (AXB)	Cost Driver Incurred ( C)	OH Allocated (AXC)	Cost Driver Incurred ( C)	OH Allocated (AXC)
Indirect Labour, Wages , Suplies	$8.40	Machine Hour	14000	$117,600.00	46000	$386,400.00	13000	$109,200.00
Material Handling , invenry srage	$248.26	No. of Production order	250	$62,064.52	2000	$496,516.13	850	$211,019.35
Research & Dev Cost	$210,200.00	Time spent by R& D	14%	$29,428.00	21%	$44,142.00	65%	$136,630.00
Rent , General Utilities	5.1	SQ Footage	21000	$107,100.00	50000	$255,000.00	19000	$96,900.00
Total Overhead (i)				$316,192.52		$1,182,058.13		$553,749.35
No. Of Units (ii)				16000		46000		15000
Overhead per Unit (i/ii)				$19.76		$25.70		$36.92

2. Calculation of Unit Product Cost
Under ABC Costing
	Commercial	Home	Miniature
Direct Material	$37.00	$24.40	30.4
Direct Labor ($14.40X 5900DLH)/ 16000, ($14.40X 11100 DLH)/46000, (17.30X2000)/15000	$5.31	$3.47	$2.31
Applied Overhead	$19.76	$25.70	$36.92
Product Cost per Unit	$62.07	$53.57	$69.63