Fenway Electronics produces video games in three market categories: commercial,
ID: 2540633 • Letter: F
Question
Fenway Electronics produces video games in three market categories: commercial, home, and miniature. Fenway has traditionally allocated overhead costs to the three products using the companywide allocation base of direct labor hours. The company recently implemented an ABC system when it installed computer-controlled assembly stations that rendered the traditional costing system ineffective. In implementing the ABC system, the company identified the following activity cost pools and cost drivers:
Category Total Pooled Cost Types of Costs Cost Driver Unit $ 360,000
Indirect labor wages, supplies, factory utilities, machine maintenance Machine hours
Batch 194,400
Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling Number of production orders
Product 105,600
Research and development Time spent by research department
Facility 300,000
Rent, general utilities, maintenance, facility depreciation, admin. salaries Square footage
Additional data for each of the product lines follow:
Commercial Home Miniature Total
Direct materials cost $ 25.00 /unit $ 15.00 /unit $ 12.00 /unit —
Direct labor cost $ 10.00 /hour $ 8.00 /hour $ 9.00 /hour —
Number of labor hours 6,000 12,000 2,000 20,000
Number of machine hours 10,000 45,000 25,000 80,000
Number of production orders 200 2,000 800 3,000
Research and development time 10 % 20 % 70 % 100 %
Number of units 15,000 45,000 14,000 74,000
Square footage 20,000 50,000 30,000 100,000
Required
Determine the total cost and cost per unit for each product line, assuming that overhead costs are allocated to each product line using direct labor hours as a companywide allocation base. Also determine the combined cost of all three product lines.
Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Determine the combined cost of all three product lines.
Explanation / Answer
DATA
COMMER $
HOME
$
MINIATURE $
TOTAL
$
DIRECT MAT PER UNIT
25
15
12
25X 15000
15 X45000
12 X14000
375000
675000
168000
DIRECT LABOUR RATE
$10 PER HOUR
10X6000
60000
$8 PER HOUR
8 X 12000
96000
$9 PER HOUR
9 X2000
18000
UNITS
15000
45000
14000
NO. OF PROD ORDERS
200
2000
800
MACHINE HOURS
10000
45000
25000
LABOUR HOURS
6000
12000
2000
20000
AREA SQ FT
20000
50000
30000
RESEARCH DEV TIME
10%
20%
70%
ANSWER ( LABOUR HOURS AS BLANKET)
DIRECT MAT
375000
675000
168000
1218000
DIRECT LABOUR
60000
96000
18000
174000
PRIME COST
435000
771000
186000
1392000
ADD: OVERHEADS
INDIRECT LABOUR ETC
360000
MATERIAL HANDLING
194400
R & D
105600
RENT ETC
300000
TOTAL OVERHEADS
288000
576000
96000
960000
TOTAL COST
723000
1347000
282000
2352000
ABC
DIRECT MAT
375000
675000
168000
1218000
DIRECT LABOUR
60000
96000
18000
174000
PRIME COST
435000
771000
186000
1392000
ADD: OVERHEADS
INDIRECT LABOUR ETC
45000
202500
112500
360000
MATERIAL HANDLING
12960
129600
51840
194400
R & D
10560
21120
73920
105600
RENT ETC
60000
150000
90000
300000
TOTAL OVERHEADS
128520
503220
328260
960000
TOTAL COST
563520
1274220
514260
2352000
DATA
COMMER $
HOME
$
MINIATURE $
TOTAL
$
DIRECT MAT PER UNIT
25
15
12
25X 15000
15 X45000
12 X14000
375000
675000
168000
DIRECT LABOUR RATE
$10 PER HOUR
10X6000
60000
$8 PER HOUR
8 X 12000
96000
$9 PER HOUR
9 X2000
18000
UNITS
15000
45000
14000
NO. OF PROD ORDERS
200
2000
800
MACHINE HOURS
10000
45000
25000
LABOUR HOURS
6000
12000
2000
20000
AREA SQ FT
20000
50000
30000
RESEARCH DEV TIME
10%
20%
70%
ANSWER ( LABOUR HOURS AS BLANKET)
DIRECT MAT
375000
675000
168000
1218000
DIRECT LABOUR
60000
96000
18000
174000
PRIME COST
435000
771000
186000
1392000
ADD: OVERHEADS
INDIRECT LABOUR ETC
360000
MATERIAL HANDLING
194400
R & D
105600
RENT ETC
300000
TOTAL OVERHEADS
288000
576000
96000
960000
TOTAL COST
723000
1347000
282000
2352000
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