Problem 5-14A Comparing an ABC system with a traditional costingsystem LO 5-1, 5-2, 5-3
Richardson Electronics produces video games in three marketcategories: commercial, home, and miniature. Richardson hastraditionally allocated overhead costs to the three products usingthe companywide allocation base of direct labor hours. The companyrecently implemented an ABC system when it installedcomputer-controlled assembly stations that rendered the traditionalcosting system ineffective. In implementing the ABC system, thecompany identified the following activity cost pools and costdrivers.
Category Total Pooled Cost Types ofCosts CostDriver Unit $ 697,000 Indirect labor wages, supplies, factory utilities,
machine maintenance
Machine hours Batch 366,100 Materials handling, inventory storage, labor for setups,
packaging, labeling and shipping, scheduling
Number ofproduction orders Product 211,300 Research anddevelopment Time spent byresearch department Facility 510,400 Rent, generalutilities, maintenance, facility depreciation,
admin. salaries Square footage
Additional datafor each of the product lines follow.
Commercial Home Miniature Total Direct materials cost $ 36.50 /unit $ 24.80 /unit $ 30.50 /unit â Direct labor cost $ 14.70 /hour $ 14.70 /hour $ 18.40 /hour â Number of labor hours 5,300 11,800 1,300 18,400 Number of machine hours 18,000 48,000 16,000 82,000 Number of production orders 280 2,200 320 2,800 Research and development time 12 % 23 % 65 % 100 % Number of units 16,000 46,000 15,000 77,000 Square footage 19,000 46,000 23,000 88,000
Required: a. Determine the total cost and cost per unit for eachproduct line, assuming that overhead costs are allocated to eachproduct line using direct labor hours as a companywide allocationbase. Also determine the combined cost of all three product lines.(Round "Cost per unit" to 2 decimal places.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
b. Determine the total cost and cost per unit for each productline, assuming that an ABC system is used to allocate overheadcosts. Determine the combined cost of all three product lines.(Round intermediate calculations and "Cost per unit" answers to 2decimal places. Round "Total cost" to the nearest dollaramount.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
Problem 5-14A Comparing an ABC system with a traditional costingsystem LO 5-1, 5-2, 5-3
Richardson Electronics produces video games in three marketcategories: commercial, home, and miniature. Richardson hastraditionally allocated overhead costs to the three products usingthe companywide allocation base of direct labor hours. The companyrecently implemented an ABC system when it installedcomputer-controlled assembly stations that rendered the traditionalcosting system ineffective. In implementing the ABC system, thecompany identified the following activity cost pools and costdrivers.
| Category | Total Pooled Cost | Types ofCosts | CostDriver | ||
| Unit | $ | 697,000 | Indirect labor wages, supplies, factory utilities, | Machine hours | |
| Batch | 366,100 | Materials handling, inventory storage, labor for setups, | Number ofproduction orders | ||
| Product | 211,300 | Research anddevelopment | Time spent byresearch department | ||
| Facility | 510,400 | Rent, generalutilities, maintenance, facility depreciation, admin. salaries | Square footage | ||
| Additional datafor each of the product lines follow. |
| Commercial | Home | Miniature | Total | |||||||||
| Direct materials cost | $ | 36.50 | /unit | $ | 24.80 | /unit | $ | 30.50 | /unit | â | ||
| Direct labor cost | $ | 14.70 | /hour | $ | 14.70 | /hour | $ | 18.40 | /hour | â | ||
| Number of labor hours | 5,300 | 11,800 | 1,300 | 18,400 | ||||||||
| Number of machine hours | 18,000 | 48,000 | 16,000 | 82,000 | ||||||||
| Number of production orders | 280 | 2,200 | 320 | 2,800 | ||||||||
| Research and development time | 12 | % | 23 | % | 65 | % | 100 | % | ||||
| Number of units | 16,000 | 46,000 | 15,000 | 77,000 | ||||||||
| Square footage | 19,000 | 46,000 | 23,000 | 88,000 | ||||||||
Required: a. Determine the total cost and cost per unit for eachproduct line, assuming that overhead costs are allocated to eachproduct line using direct labor hours as a companywide allocationbase. Also determine the combined cost of all three product lines.(Round "Cost per unit" to 2 decimal places.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
b. Determine the total cost and cost per unit for each productline, assuming that an ABC system is used to allocate overheadcosts. Determine the combined cost of all three product lines.(Round intermediate calculations and "Cost per unit" answers to 2decimal places. Round "Total cost" to the nearest dollaramount.)
Type of product Total cost cost per unit
commercial
home
miniature
combined total
