Chicago Computing Corporation manufactures two remote Internet communication dev
ID: 2476825 • Letter: C
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:
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.
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.
What are the three environmental factors that normally exist where a company is using ABC costing?
Discuss some of the reasons firms have not adopted ABC costing.
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
Explanation / Answer
Computation of total cost & unit cost using single driver approach with labour hours being the cost driver Personal DeLuxe Direct Material $5,00,000 $8,00,000 Direct Labour $5,00,000 $3,00,000 Other cost applied using activity rate of $43.75 per hour $10,93,750 $6,56,250 Total cost $20,93,750 $17,56,250 No.of units 10,000 5,000 Per unit cost $209 $351 Activity rate using direct labour hours = Total cost / Total labour hours = $1750000 / 40000 hours = $43.75 per hour Computation of total cost & unit cost using ABC analysis Calculation of activity rates Cost Cost driver Activity Rate Purchasing $10,00,000 10000 Purchase orders $100.00 per order Soldering $5,00,000 100000 inches $5.00 per inch General Factory $2,50,000 40000 labour hours $6.25 per hour Personal DeLuxe Direct Material $5,00,000 $8,00,000 Direct Labour $5,00,000 $3,00,000 Purchasing cost $6,00,000 $4,00,000 Soldering cost $2,50,000 $2,50,000 General Factory cost $1,56,250 $93,750 Total cost $20,06,250 $18,43,750 No.of units 10,000 5,000 Per unit cost $201 $369
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