Chicago Computing Corporation manufactures two remote Internet communication dev

Question

Chicago Computing Corporation manufactures two remote Internet communication devices: Personal and DeLuxe. Below is the information relative to their costs: Name of Pool Dollars in Pool No. of Drivers Driver Purchasing $1,000,000 10,000 Purch. Orders Soldering 500,000 100,000 Inches General Factory 250,000 40,000 Labor Hours $1,750,000 Labor rate is $20.00 per hour. Following is information relative to the two products: Description Personal DeLuxe Direct Material 500,000 800,000 Number of Units 10,000 5,000 Purchase Orders 6,000 4,000 Inches 50,000 50,000 Direct Labor Hours 25,000 15,000 Required: 1. Compute the total cost of making the personal device and the deluxe device using the single driver approach with labor hours being the cost driver. Also, compute the unit cost of each device. 2. Compute the total cost of making the personal device and the deluxe device using the ABC approach. Also, compute the unit cost of each device. 3. What are the three environmental factors that normally exist where a company is using ABC costing? 4. Discuss some of the reasons firms have not adopted ABC costing.

Explanation / Answer

Informations in question:-

Answer 1

Particulars

Allocation basis

Personal

Delux

Direct material

Given in question

500000

800000

Labour cost

20 per hour

500000

300000

Driver purchasing

(1000000/40000) per labour hour

625000

375000

Order soldering

(500000/40000) per labour hour

312500

187500

General factory

(250000/40000) per labour hour

156250

93750

Total cost

2093750

1756250

Answer 2

Particulars

Allocation basis

Personal

Delux

Direct material

Given in question

500000

800000

Labour cost

20 per hour

500000

300000

Driver purchasing

100 per purch

600000

400000

Order soldering

5 per inch

250000

250000

General factory

6.25 per hour

156250

93750

Total cost

2006250

1843750

Personal Delux Total (in $) No of drivers Per cost driver Direct material 500000 800000 Driver purchaing 1000000 10000 100 No of units 10000 5000 Order soldering 500000 100000 5 Purchase orders 6000 4000 General factory 250000 40000 6.25 Order soldering 50000 50000 Labour rate 20 per hour 800000 40000 20 Direct labour hour 25000 15000

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