After reviewing the new activity-based costing system that Janis McGee has imple
ID: 2568328 • Letter: A
Question
After reviewing the new activity-based costing system that Janis McGee has implemented at Joplin Industries’s Port Arthur manufacturing facility, Kris Kristoff, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 109,000 units of J25P and 44,500 units of J40X in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the J25P and the J40X products by 34 percent.
Required:
Compute the amount of overhead allocated to the J25P and the J40X cameras for the first quarter using activity-based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900.
J25P J40X Direct material $ 1,509,000 $ 2,418,000 Direct labor Assembly $ 759,000 $ 618,000 Packaging 999,000 378,000 Total direct labor $ 1,758,000 $ 996,000 Direct costs $ 3,267,000 $ 3,414,000 Overhead Assembly building Assembling (@ $30 per mh) $ 198,000 $ 918,000 Setting up machine (@ $900 per setup hour) 40,500 369,000 Handling material (@ $3,000 per run) 28,500 129,000 Packaging building Inspecting and Packing (@ $5 per direct labor-hour) 318,000 123,000 Shipping (@ $1,320 per shipment) 141,000 282,000 Total ABC overhead $ 726,000 $ 1,821,000 Total ABC cost $ 3,993,000 $ 5,235,000 Number of units 109,000 44,500 Unit cost $ 36.63 $ 117.64Explanation / Answer
J25P J40X Current Setting up cost@900 40500 369000 Setup rate per hour 900 900 Number of setup hours(Cost/900) 45 410 Less: Reduction in setups hours@34% 15.3 139.4 Setup hours for First Quarter 29.7 270.6 Overheads: Assembling building Assembling(@30 per mh) 198000 918000 Setting up machine (@900 per setup hour) 26730 243540 handling Material(@3000 per run) 28500 129000 Packaging Building Inspecting and packing(@5 per labour hour) 318000 123000 Shipping(@1320 per shipment) 141000 282000 Total ABC Overheads 712230 1695540