Question

This question has 3 parts. Thank you.

1 A

PB Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes.

		Type of Textbook
Activity (Cost)	Cost Driver	Deluxe			Moderate			Economy
Machine maintenance ($300,000)	Number of machine hours	250			750			1,000
Setups ($760,000)	Number of setups	40			35			5
Packing ($192,000)	Number of cartons	20			40			60
Photo development ($448,000)	Number of pictures	3,500			1,500			2,000

Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs. Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings.

Required

1. PB Publishing currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year:

Deluxe	Moderate	Economy
50,000	150,000	200,000

Determine the overhead cost per book for each book type.

2. Determine the overhead cost per book, assuming that the volume-based allocation system described in Requirement a is replaced with an activity-based costing system.

1B

PB Publishing produces two kinds of skateboards. Selected unit data for the two boards for the last quarter follow:

	Basco Boards			Shimano Boards
Production costs
Direct materials	$	24.30		$	36.60
Direct labor	$	30.30		$	51.60
Allocated overhead	$	15.15		$	18.60
Total units produced and sold		4,300			8,300
Total sales revenue	$	367,650		$	1,020,900

PB Publishing allocates production overhead using activity-based costing. It allocates delivery expense and sales commissions, which amount to $55,500 per quarter, to the two products equally.

Required

1. Compute the per-unit cost for each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

2. Compute the profit for each product.

1C

PB Publishing produces video games in three market categories: commercial, home, and miniature. PB 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		$	712,800		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			729,600		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			210,300		Research and development	Time spent by research department
Facility			489,700		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	$	36.80	/unit		$	24.70	/unit		$	29.30	/unit			—
Direct labor cost	$	15.10	/hour		$	15.10	/hour		$	18.30	/hour			—
Number of labor hours		7,000				11,300				2,300				20,600
Number of machine hours		17,000				45,000				19,000				81,000
Number of production orders		210				1,900				990				3,100
Research and development time		12	%			21	%			67	%			100	%
Number of units		17,000				48,000				16,000				81,000
Square footage		17,000				45,000				21,000				83,000

    
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

Answer is given below