Question

Campbell Electronics produces video games in three market categories: commercial, home, and miniature. Campbell 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		$	737,100		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			830,900		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			210,400		Research and development	Time spent by research department
Facility			478,400		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	$	35.80	/unit		$	24.10	/unit		$	29.50	/unit			—
Direct labor cost	$	14.10	/hour		$	14.10	/hour		$	17.50	/hour			—
Number of labor hours		6,600				12,200				2,900				21,700
Number of machine hours		11,000				43,000				27,000				81,000
Number of production orders		230				1,800				1,070				3,100
Research and development time		13	%			18	%			69	%			100	%
Number of units		17,000				43,000				16,000				76,000
Square footage		20,000				47,000				25,000				92,000
Required 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. 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. type of product total cost cost per unit a. commercial home miniature combined total $ b. commercial home miniature combined total $

Answer 1

a) Total Overhead costs = $737,100+$830,900+$210,400+$478,400 = $2,256,800

Calculation of Total Cost and Cost per Unit (Amounts in $)

	Commercial	Home	Miniature
1) No. of units	17,000	43,000	16,000
2) Direct materials cost	608,600 ($35.80*17,000)	1,036,300 ($24.10*43,000)	472,000 ($29.50*16,000)
3) Direct Labor cost	93,060 ($14.10*6,600)	172,020 ($14.10*12,200)	50,750 ($17.50*2,900)
4) Ratio for allocation of overheads (labor hours ratio in %)	66/217	122/217	29/217
5) Overheads allocated	686,400 (2,256,800*66/217)	1,268,800 (2,256,800*122/217)	301,600 (2,256,800*29/217)
6) Total cost (2+3+5)	1,388,060	2,477,120	824,350
7) Cost per unit (6/1)	81.65	57.61	51.52

b) Calculation of Activity Cost (Amounts in $)

Types of Costs	Cost Driver	Total Pooled Cost (A)	Total Activity (B)	Activity Rate (A/B)
Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours	737,100	81,000	9.10 per hour
Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders	830,900	3,100	268.032258
Research and development	Time spent by research department	210,400	100	2104
Rent, general utilities, maintenance, facility depreciation, admin. salaries	Square footage	478,400	92,000	5.2

Calculation of overhead allocated (Amounts in $)

	Commercial	Home	Miniature
Unit cost	100,100 ($9.10*11,000)	391,300 ($9.10*43,000)	245,700 ($9.10*27,000)
Batch Cost	61,647 (230*268.032258)	482,458 (1,800*268.032258)	286,795 (1,070*268.032258)
Product Cost	27,352 (2104*13)	37,872 (2104*18)	145,176 (2104*69)
Facility Cost	104,000 (20,000*5.2)	244,400 (47,000*5.2)	130,000 (25,000*5.2)
Total Overheads Allocated	293,099	1,156,030	807,671

Calculation of Total Cost and Cost per Unit (Amounts in $)

	Commercial	Home	Miniature
1) No. of units	17,000	43,000	16,000
2) Direct materials cost	608,600 ($35.80*17,000)	1,036,300 ($24.10*43,000)	472,000 ($29.50*16,000)
3) Direct Labor cost	93,060 ($14.10*6,600)	172,020 ($14.10*12,200)	50,750 ($17.50*2,900)
4) Overheads allocated	293,099	1,156,030	807,671
5) Total cost (2+3+4)	994,759	2,364,350	1,330,421
6) Cost per unit (5/1)	58.52	54.98	83.15