Activity-Based Costing and Product Cost Distortion Digital Storage Concept Inc.

Question

Activity-Based Costing and Product Cost Distortion Digital Storage Concept Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCS, in a single production department. The production department is estimated to require 4,000 direct labor hours. The total indirect labor is budgeted to be s510.400. Time records from indirect labor employees revealed that they spent 60% of their time setting up production runs and 40% of their time supporting actual production. The following information about cell phones and tablet POs was determined from the corporate records: Number of Direct Labor Hours Setups Cell phones 1,600 800 2,400 2,000 88,000 2,000 88,000 4,000176,000 Tablet PCs Total If required, round your answers to the nearest cent a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base. Cell phones Tablet PCs b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activities-one for setup and the other for production support per unit per unit BudgetedActivity Cost Activity Rate - per setup per direct labor hour Setup Production support c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. per unit Cell phones Tablet PCs per unit

Explanation / Answer

a) overhead rate 510400/4000 127.6 Answer cell phones (2000*127.6)/88000 2.9 per unit Tablet PC's (2000*127.6)/88000 2.9 per unit b) Setting up cost (510400*60%) 306240 /2400 127.6 per setup production runs (510400*40%)= 204160 /4000 51.04 per production run Budgeted Cost activity Activity Cost rate Setup 306,240 127.6 production support 204,160 51.04 c) Setups support total units per unit Cell phones 204160 102080 306240 88000 3.48 Table pcs 102080 102080 204160 88000 2.32 total 306240 204160 510400 Cell phones $3.48 per unit Table pcs $2.32 per unit

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