Question

After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's 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 100,000 units of the Sport model and 40,000 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 25 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine-hours 6,000 30,000 36,000 Setting up machines Setup hours 400 440 Handling material Production runs 40 48 Packaging building Inspecting and packing Direct labor-hours 60,000 22,800 82,800 Shipping Number of shipments 200 300 40 8 100

Answer 1

Date Page Nancy Chen I working note 1 : Calculation of - pes new plan set up houes as Particulars Prikal set up houss vess: Reduction due to efficiency Spost 40 pro 400 95% 251 New set up hours 30 300 Computation of overhead allocated to spent and pro- Note: since, there is no change encept for xt up haus, we will change only set up cost in Tech air walking No, ero Sport $672000 Particulars Ird 06) Castiev ABC Oreshead Hesse set upcast as pes L M rd Ottater (a) a) $1758000 16) 10 (36000) $636000 (360000) $1398000 Add: set up cost as Heee new estimation of id) set up hours. (1900 pee - set up houd_ $27000__ ($900 830) WNL $ 270000 ($900 X300) WN $663000 $16 68000 Total wwwhead cast as All ABC methad (c+d)