Question

1 L Ul Edull product. hones, VC Cell phones, $1.68 per unit dan TEMPLATE 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 recue 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 600 1,875 93,750 Tablet PCs 1,400 1,875 93,750 Total 3,750 187,500 2,000 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

Answer with working is given below

Plantwide overhead rate Total Overheads Total direct labor hour $375,000 3,750 $100.00 Per direct labor hour Total Direct labor hour Direct labor hour rate Total Overhead allocated Total output Indirect labor cost per unit Cell phones 1,875 $100 $187,500 93,750 $2.00 Tablet PCs 1,875 $100 $187,500 93,750 $2.00 Activity rate Calculation of Activity Cost Pool and Activity rates Total Total Activity Overheads Activities Production runs $150,000 2,000 Production support $225,000 Total budgeted indirect costs $375,000 $75.00 per set up $60.00 Per direct labor hour 3,750 Cost allocation 40% to Production run balance to Production support Cost activity rate Activities used Allocated Cost Activity Production runs Production support Total Overheads $75.00 $60.00 Cell phones 600 1,875 Tablet PCS 1,400 1,875 Cell phones $45,000 $112,5001 $157,500 93,750 $1.68 Tablet PCS $105,000 $112,500 $217,500 A 93,750 B $2.32 A/B Total output Indirect labor cost per unit D The per unit allocation varies mainly because of the activities consumed in ABC method. Set ups needed for Cell phone and Tablets PC are different hence allocation of cost varies under ABC method But in plantwide rate the cost driver is direct labor and hence the rate is constant since direct labor hour used is same for both product