Reference no: EM132573788
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 110,000 units of the Sport model and 45,000 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 35 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Cost Driver Volume Activity Cost Driver Sport Pro Total Assembly building
Assembling Machine-hours 7,000 31,000 38,000
Setting up machines Setup hours 50 500 550
Handling material Production runs 18 50 68
Packaging building Inspecting and packing
Direct labor-hours 64,000 24,800 88,800
Shipping Nmber of shipments 110 220 330
Third Quarter Unit Cost Report, Activity-Based Costing-CenterPoint Manufacturing Facility Sport Pro
Direct material $1,510,000 $2,420,000
Direct labor Assembly $ 760,000
Packaging 1,000,000
Total direct labor $1,760,000
Direct costs $3,270,000
Overhead Assembly building
Assembling (@ $30 per MH) $ 210,000
Setting up machine (@$900 per setup hour) 45,000
Handling material (@ $3,000 per run) 54,000
Packaging building Inspecting and packing (@$5 per direct labor-hour) 320,000
Shipping (@ $1,320 per shipment) 145,200
Total ABC overhead $ 774,200
Total ABC cost $4,044,200
Number of units 110,000
Unit cost $ 36.77
$ 620,000 380,000
$1,000,000 $3,420,000
$ 930,000 450,000 150,000 124,000 290,400
$1,944,400 $5,364,400 45,000 $ 119.21
Required:
Question 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.