Memory Media Inc. is considering a change to activity-based product costing. The company produces two products, CDs
Question:
Memory Media Inc. is considering a change to activity-based product costing. The company produces two products, CDs and DVDs, in a single production department. The production department is estimated to require 4,000 direct labor hours. The total indirect labor is budgeted to be $420,000.
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 CDs and DVDs was determined from the corporate records:
a. Determine the indirect labor cost per unit allocated to CDs and DVDs under a single plant-wide factory overhead rate system using the direct labor hours as the allocation base.
b. Determine the activity pools and activity rates for the indirect labor under activity-based costing. Assume two activity pools'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)?
Step by Step Answer:
Managerial Accounting
ISBN: b010ikdqzm
10th Edition
Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac