Problem 5-14A Comparing an ABC system with a traditional costing system LO 5-1,
ID: 2415234 • Letter: P
Question
Problem 5-14A Comparing an ABC system with a traditional costing system LO 5-1, 5-2, 5-3
Richardson Electronics produces video games in three market categories: commercial, home, and miniature. Richardson 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.
Indirect labor wages, supplies, factory utilities,
machine maintenance
Materials handling, inventory storage, labor for setups,
packaging, labeling and shipping, scheduling
Required: a. 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. (Round "Cost per unit" to 2 decimal places.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
b. 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. (Round intermediate calculations and "Cost per unit" answers to 2 decimal places. Round "Total cost" to the nearest dollar amount.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
Category Total Pooled Cost Types of Costs Cost Driver Unit $ 697,000Indirect labor wages, supplies, factory utilities,
machine maintenance
Materials handling, inventory storage, labor for setups,
packaging, labeling and shipping, scheduling
admin. salaries Square footage
Explanation / Answer
1) 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
Type of product
Direct materials cost
Direct labor cost
Overhead cost
Total cost
Units
Cost per unit
commercial
=36.50*16000
=584000
=14.70*5300
=77910
514100
1176010
16000
73.50063
Home
=24.80*46000
=1140800
=14.70*11800
=173460
1144600
2458860
46000
53.45348
Miniature
=30.50*23000
=701500
=18.40*1300
=23920
126100
851520
23000
37.02261
Combined total
2426300
275290
17,84,800
44,86,390
b) 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
Types of Costs
Total Pooled Cost
Cost driver
Per unit cost
Commercial
Home
Miniature
Indirect labor wages, supplies, factory utilities,
machine maintenance
697,000
Machine hour = 82000
8.5
=8.5*18000
=153000
=8.5*48000
=408000
=8.5*16000
=136000
Materials handling, inventory storage, labor for setups,
packaging, labeling and shipping, scheduling
366,100
Number of production orders = 2800
130.75
=130.75*280
=36610
=130.75*2200
=287650
=130.75*320
=41840
Research and development
211,300
Time spent by research department = 100%
211300
=211300*12%
=25356
=211300*23%
=48599
=211300*65%
=137345
Rent, general utilities, maintenance, facility depreciation, admin. Salaries
510,400
Square footage = 88000
5.8
=5.8*19000
=110200
=5.8*46000
=266800
=5.8*23000
=133400
Type of product
Direct materials cost
Direct labor cost
Overhead cost
Total cost
Units
Cost per unit
commercial
=36.50*16000
=584000
=14.70*5300
=77910
325166
987076
16000
61.69225
Home
=24.80*46000
=1140800
=14.70*11800
=173460
1011049
2325309
46000
50.5502
Miniature
=30.50*23000
=701500
=18.40*1300
=23920
448585
1174005
23000
51.0437
Combined total
2426300
275290
1784800
4486390
Type of product
Direct materials cost
Direct labor cost
Overhead cost
Total cost
Units
Cost per unit
commercial
=36.50*16000
=584000
=14.70*5300
=77910
514100
1176010
16000
73.50063
Home
=24.80*46000
=1140800
=14.70*11800
=173460
1144600
2458860
46000
53.45348
Miniature
=30.50*23000
=701500
=18.40*1300
=23920
126100
851520
23000
37.02261
Combined total
2426300
275290
17,84,800
44,86,390