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 115,000 units of the Sport model and 47,500 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 20 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building Assembling Machine-hours 7,500 31,500 39, eee Setting up machines Setup hours 55 Handling material Production runs 78 Packaging building Inspecting and packing Direct labor-hours 66,eee 25,800 91,800 Shipping Number of shipments 115 230 345 6e5 23558 55 Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport Pro Direct material $1,515,000 $2,430,000 Direct labor Assembly $ 765, eee $ 630,000 Packaging 1,005, een 390, eee Total direct labor $1,770,eee $1,020,000 Direct costs $3,285,000 $3,450,000 Overhead Assembly building Assembling (@ $30 per MH) $ 225, een $ 945,000 Setting up machine (@ $900 per setup hour) 49,500 495,000 Handling material (@ $3,eee per run) 69,000 165,000 Packaging building Inspecting and packing (@ $5 per direct labor-hour) 330,000 129,00 Shipping (@ $1,320 per shipment) 151,800 303,600 Total ABC overhead $ 825,300 $2,037,600 Total ABC cost $4,110,300 $5,487,600 Number of units 115,00 47,500 Unit cost $ 35.74 $ 115.53 Required: a. Compute the amount of overhead allocated to the Sport and the Pro drones for the first quarter using activity-based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900. Model Total ABC Overhead Sport Pro

Answer 1

IVC's Centerpoint Sport Pro Total ABC Overhead 815400 1938600 Sport 1515000 Pro 2430000 765000 1005000 1770000 3285000 630000 390000 1020000 3450000 Direct material Direct labor Assembly Packaging Total direct labor Direct costs Overhead Assembly building Assembling (@ $30 per mh) Setting up machine (@$900 per setup hour) Handling material (@$3,000 per run) Packaging building Inspecting and Packing (@$5 per direct labor-hour) Shipping (@$1,320 per shipment) Total ABC overhead Total ABC cost Number of units Unit cost 225000 39600 69000 945000 396000 165000 330000 129000 151800 303600 815400 1938600 4100400 5388600 115000 47500 35.66 113.44 Setting up machine ($39,600 = 0.80 x $49,500; $396,000 = 0.80 x $495,000).