Question

Digital VC. Cell phones, cell phones, 168 per unit sitaTEMPLATE EX 18-13 Activity-based costing and product cost distortion Obj. 2,4 Digital Storage Concept Inc. is considering a change to activity-based product costing. The com pany produces two products, cell phones and tablet PCs in a single production department. The production department is estimated to require 3.750 direct labor hours. The total indirect labor is budgeted to be $375,000. Time records from indirect labor emplovees revealed that they spent 40% of their time setting up production runs and 60% of their time supporting actual production. The following information about cell phones and tablet PCs was determined from the corporate records: Number of Direct Labor Setups Hours Units Cell phones 1,875 93,750 Tablet PCs 1,400 1,875 93,750 Total 2.000 3,750 187,500 LEH PHONC O DO A. B. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the alloca tion base. Determine the budgeted activity costs and activity rates for the indirect labor under activity based costing. Assume two activities one for setup and the other for production support Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing Why are the per-unit allocated costs in (A) different from the per-unit activity cost assigned to the products in (C)? C. D.

Answer 1

Total labor cost Total hours Rate per hour $ 3,75,000.00 $ 3,750.00 100 per hour Rate per unit for cell phone Rate per unit for PC 2.00 2.00 =1875*100/93750 =1975*100/93750 Budgeted activiti cost Setup $ 1,50,000.00 =375000*40% $ 2,25,000.00 =375000*60% Production support Activity rate Per setup Production support per direct labor hour 75.00 =150000/2000 60.00 =225000/3750 $ Activity cost per unit Cell phones Setup Production support Per unit cost $ 45,000.00=75*600 $ 1,12,500.00 =60*1875 1.68 =45000+112500/93750 PC's Setup Production support Per unit cost $ 1,05,000.00 -75*1400 $ 1,12,500.00 =60*1875 2.32 =105000+112500/93750