After reviewing the new activity-based costing system that Janis McGee has imple
ID: 2569769 • 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 119,000 units of J25P and 49,500 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 16 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 $ 1,519,000 $ 2,438,000 Direct labor Assembly $ 769,000 $ 638,000 Packaging 1,009,000 398,000 Total direct labor $ 1,778,000 $ 1,036,000 Direct costs $ 3,297,000 $ 3,474,000 Overhead Assembly building Assembling (@ $30 per mh) $ 218,000 $ 938,000 Setting up machine (@ $900 per setup hour) 45,500 379,000 Handling material (@ $3,000 per run) 33,500 139,000 Packaging building Inspecting and Packing (@ $5 per direct labor-hour) 338,000 133,000 Shipping (@ $1,320 per shipment) 151,000 302,000 Total ABC overhead $ 786,000 $ 1,891,000 Total ABC cost $ 4,083,000 $ 5,365,000 Number of units 119,000 49,500 Unit cost $ 34.31 $ 108.38Explanation / Answer
J25P J40X Current Setting up cost@900 45500 379000 Setup rate per hour 900 900 Number of setup hours(Cost/900) 50.56 421.11 Less: Reduction in setups hours@16% 8.09 67.38 Setup hours for First Quarter 42.47 353.73 Overheads: Assembling building Assembling(@30 per mh) 218000 938000 Setting up machine (@900 per setup hour) 38223 318357 handling Material(@3000 per run) 33500 139000 Packaging Building Inspecting and packing(@5 per labour hour) 338000 133000 Shipping(@1320 per shipment) 151000 302000 Total ABC Overheads 778723 1830357