Chicago Computing Corporation manufactures two remote Internet communication dev
ID: 2478664 • 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:
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.
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
1. Single driver approach:
Predetermined overhead rate = Total budgeted overheads / Total number of labor hours = $ 1,750,000 / 40,000 = $ 43.75
2. Activity based costing:
3. Three environmental factors would be
4. Some reasons for not adopting ABC:
Personal DeLuxe Direct material cost 500,000 800,000 Direct labor cost 500,000 300,000 Manufacturing overhead cost 1,093,750 656,250 Total manufacturing cost 2,093,750 1,756,250 Number of units 10,000 5,000 Unit cost $ 209.375 $ 351.25Related Questions
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