Question

Fenway Electronics produces video games in three market categories: commercial, home, and miniature. Fenway 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		$	360,000		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			194,400		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			105,600		Research and development	Time spent by research department
Facility			300,000		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	$	25.00	/unit		$	15.00	/unit		$	12.00	/unit			—
Direct labor cost	$	10.00	/hour		$	8.00	/hour		$	9.00	/hour			—
Number of labor hours		6,000				12,000				2,000				20,000
Number of machine hours		10,000				45,000				25,000				80,000
Number of production orders		200				2,000				800				3,000
Research and development time		10	%			20	%			70	%			100	%
Number of units		15,000				45,000				14,000				74,000
Square footage		20,000				50,000				30,000				100,000

    
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.

(For all requirements, round intermediate calculations and "Cost per Unit" to 2 decimal places.)

Answer 1

DETERMINATION OF COST BY ALLOCATING OVERHEAD COST USING DIRECT LABOR HOURS

DETERMINATION OF COST BY ALLOCATING OVERHEAD COST USING ABC COSTING SYSTEM