The wireless phone manufacturing division of a consumer electronics company uses activity-based costing. For simplicity, assume that its accountants have identified only the following three activities and related cost drivers for indirect production costs:
Activity .......... Cost Driver
Materials handling . Direct-materials cost
Engineering . Engineering change notices
Power ......... Kilowatt hours

Three types of cell phones are produced: Senior, Basic, and Deluxe. Direct costs and cost-driver activity for each product for a recent month are as follows:

Indirect production costs for the month were as follows:
Materials handling ....... $ 15,400
Engineering ......... 99,000
Power ............ 11,000
Total indirect production cost . $125,400

1. Compute the indirect production costs allocated to each product with the ABC system.
2. Suppose all indirect production costs had been allocated to products in proportion to their direct- labor costs. Compute the indirect production costs allocated to each product.
3. In which product costs, those in requirement 1 or those in requirement 2, do you have the most confidence?Why?

  • CreatedNovember 19, 2014
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