Digital Storage Concept Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 3,750 direct labor hours. The total indirect labor is budgeted to be $ 375,000.
Time records from indirect labor employees revealed that they spent 40% of their time setting up production runs and 60% of their time supporting actual production.
The following information about cell phones and tablet PCs was determined from the corporate records:

a. Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base.
b. Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activities€”one for setup and the other for production support.
c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing.
d. Why are the per- unit allocated costs in (a) different from the per-unit activity cost assigned to the products in(c)?

Transcribed Image Text:

Number of Setups 600 1,400 2,000 Direct Labor Hours Units Cell phones Tablet PCs Total 1,875 1,875 3750 93,750 93,750 187,500