Question

Finch Electronics produces video games in three market categories: commercial, home, and miniature. Finch 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		$	720,000		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			645,100		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			211,100		Research and development	Time spent by research department
Facility			429,300		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		$	24.50	/unit		$	29.30	/unit			—
Direct labor cost	$	14.90	/hour		$	14.90	/hour		$	18.50	/hour			—
Number of labor hours		5,000				11,800				2,300				19,100
Number of machine hours		16,000				45,000				11,000				72,000
Number of production orders		280				2,000				220				2,500
Research and development time		10	%			19	%			71	%			100	%
Number of units		14,000				40,000				13,000				67,000
Square footage		21,000				48,000				12,000				81,000

    
Required

1. 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.

2. 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.

Answer 1

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