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:

	Number of Setups	Direct Labor Hours	Units
Cell phones	600	1,875	93,750
Tablet PCs	1,400	1,875	93,750
Total	2,000	3,750	187,500

Required:

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.
	Complete the Activity Tables for cell phones and tablets:
b.	Determine the budgeted activity costs and activity rates for the indirect labor under activity-based costing. Assume two activitiesone 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.*

Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)?

Neither cost is distorted, but the costs are different due to inefficiencies in the production process.

The per-unit allocated costs in (a) are distorted because setup activity is consumed by the products in a different ratio from the direct labor.

The per-unit activity cost assigned to the products in (c) are distorted because the number of direct labor hours is the same for each product.