Question

Baird Electronics produces video games in three market categories: commercial, home, and miniature. Baird 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		$	655,200		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			793,500		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			212,000		Research and development	Time spent by research department
Facility			492,000		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	$	36.20	/unit		$	23.30	/unit		$	29.40	/unit			—
Direct labor cost	$	14.90	/hour		$	14.90	/hour		$	17.20	/hour			—
Number of labor hours		5,800				12,500				2,600				20,900
Number of machine hours		19,000				44,000				9,000				72,000
Number of production orders		210				2,100				490				2,800
Research and development time		11	%			22	%			67	%			100	%
Number of units		18,000				41,000				17,000				76,000
Square footage		19,000				48,000				15,000				82,000

    
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 for allocation rates to 2 decimal places and all other calculations to the nearest whole dollar. Round "Cost per Unit" to 2 decimal places. Round your answers for "Total Cost" to the nearest whole dollar amount.)

Baird Electronics produces video games in three market categories: commercial, home, and miniature. Baird 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		$	655,200		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			793,500		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			212,000		Research and development	Time spent by research department
Facility			492,000		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	$	36.20	/unit		$	23.30	/unit		$	29.40	/unit			—
Direct labor cost	$	14.90	/hour		$	14.90	/hour		$	17.20	/hour			—
Number of labor hours		5,800				12,500				2,600				20,900
Number of machine hours		19,000				44,000				9,000				72,000
Number of production orders		210				2,100				490				2,800
Research and development time		11	%			22	%			67	%			100	%
Number of units		18,000				41,000				17,000				76,000
Square footage		19,000				48,000				15,000				82,000

    
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 for allocation rates to 2 decimal places and all other calculations to the nearest whole dollar. Round "Cost per Unit" to 2 decimal places. Round your answers for "Total Cost" to the nearest whole dollar amount.)

a.	Type of Product	Total Cost	Cost per Unit
	Commercial
	Home
	Miniature
	Combined Total
b.	Commercial
	Home
	Miniature
	Combined Total

Answer 1

	Type of Product	Total Cost	Cost per unit
a)	Commercial	1,335,420	74.19
	Home	2,429,050	59.25
	Miniature	812,320	47.78
	Combined Total	4,576,790
b)	Commercial	1,107,753	61.54
	Home	2,471,715	60.29
	Miniature	997,323	58.67
	Combined Total	4,576,790

Working Note 1: Calculate cost by using labour hor
	Commercial	Home	Miniature
Direct Material cost/ unit	36.2	23.3	29.4
No. of Units	18,000	41,000	17,000
Total direct material cost	651,600	955,300	499,800
Labour cost per hour	14.9	14.9	17.2
No. of labor hours	5,800	12,500	2,600
Total direct labour cost	86,420	186,250	44,720
Overhead cost	597,400	1,287,500	267,800	(See note 2)
(No. of labor hr * predetermined rate)
Total product cost	1,335,420	2,429,050	812,320
Divided by No. of Units	18,000	41,000	17,000
Cost per unit	74.19	59.25	47.78

Working Note 2: Caluclate predetermined overhead rate
Category
Unit	655,200
Batch	793,500
product	212,000
Facility	492,000
Total Overhead cost	2,152,700
Divided by total direct abour hour	20,900
Oberhead per hour	103.00

Woring Note 3: Calculate cost by using ABC costing
	Commercial	Home	Miniature
Total direct material cost	651,600	955,300	499,800
Total direct labour cost	86,420	186,250	44,720
Overhead cost	369,733	1,330,165	452,803	(See Note 4)
Total product cost	1,107,753	2,471,715	997,323
Divided by No. of Units	18,000	41,000	17,000
Cost per unit	61.54	60.29	58.67

Working Note 4: Overhead allocation sheet			Commercial	Home	Miniature
Activity	Total OH Cost	Total Cost Driver	OH Rate	Driver Incurred	OH Cost assigned	Driver Incurred	OH Cost assigned	Driver Incurred	OH Cost assigned
Unit	655,200	72000	9.10	19,000	172,900	44,000	400,400	9,000	81,900
Batch	793,500	2800	283.39	210	59,513	2,100	595,125	490	138,863
Product	212,000	100%	212,000	11%	23,320	22%	46,640	67%	142,040
Facility	492,000	82,000	6.00	19,000	114,000	48,000	288,000	15,000	90,000
Total	2,152,700				369,733		1,330,165		452,803