The Good sounds Corp. is attempting to get a better estimate of the cost of thei

Question

The Good sounds Corp. is attempting to get a better estimate of the cost of their products. As a first step, they are attempting to allocate overhead by defining three activity cost pools and three corresponding cost drivers of each of these pools correlate with the costs of that activity pool. The estimated overhead costs and activity levels for each activity are given as follows:
Activity Cost Driver Estimated OH costs Estimated Activity level
Supervision Direct Labor $ $60,000 $150,000
Inspection # Inspections $40,000 2,000
Machine use Machine hours $400,000 10,000


Radios CD Players
Direct Labor $ $120,000 $30,000
# Inspections 500 1,500
Machine hours 5,000 5,000


Radios CD Players
Direct Material $1,500,000 $500,000
Direct Labor $120,000 $30,000
Units produced 20,000 10,000

What is the unit cost of a CD player?

Explanation / Answer

Radios - 20,000 units 1500000 Direct Materials 120000 Direct labor 48000 Supervision (60000/150000)*120000 10000 Inspection (40000/2000)*500 200000 Machine use (400000/10000)*5000 1878000 Total 93.9 Unit cost 1878000/20000

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