Fenway Electronics produces video games in three market categories: commercial, home, and miniature. Fenway has traditionally allocated

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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:

Fenway Electronics produces video games in three market categories: commercial,

Additional data for each of the product lines follow:

Fenway Electronics produces video games in three market categories: commercial,

Required
Round your figures to two decimal points.
a. 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.
b. 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.
c. Explain why the combined total cost computed in Requirements a and b is the same amount. Given that the combined cost is the same using either allocation method, why is an ABC system with many different allocation rates more accurate than a traditional system with a single companywide overhead rate?

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Related Book For  book-img-for-question

Fundamental Managerial Accounting Concepts

ISBN: 978-1259569197

8th edition

Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds

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