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Crenshaw 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 4,000 direct lab hours. The total indirect labor is budgeted to be $468,000. 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: Direct Labor Hours Cell phones Tablet PCs Total Number of Setups per unit 500 1,100 1,600 2,000 2,000 4,000 If required, round your answers to the nearest cent. . 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. Cell phones s per unit ablet PCs Units 60,000 60,000 120,000 per unit . 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. Budgeted Activity Cost Activity Rate Setup per setup Production support per direct labor hour Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones s per unit ablet PCs 1. Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)? The per-unit indirect labor costs in (a) are distorted because is consumed by the products in a different ratio from the direct labor. The number of setups receiving a larger portion of the setup activity cost. The costing method results in the product with the allocates overhead only on the basis of direct labor hours. Since the direct labor hours equal for

Crenshaw 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 4,000 direct lab hours. The total indirect labor is budgeted to be $468,000. 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: Direct Labor Hours Cell phones Tablet PCs Total Number of Setups per unit 500 1,100 1,600 2,000 2,000 4,000 If required, round your answers to the nearest cent. . 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. Cell phones s per unit ablet PCs Units 60,000 60,000 120,000 per unit . 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. Budgeted Activity Cost Activity Rate Setup per setup Production support per direct labor hour Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones s per unit ablet PCs 1. Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)? The per-unit indirect labor costs in (a) are distorted because is consumed by the products in a different ratio from the direct labor. The number of setups receiving a larger portion of the setup activity cost. The costing method results in the product with the allocates overhead only on the basis of direct labor hours. Since the direct labor hours equal for

Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter18: Activity-based Costing
Section: Chapter Questions
Problem 13E: Handbrain Inc. is considering a change to activity-based product costing. The company produces two...
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Activity-based costing and product cost distortion Crenshaw 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 4,000 direct labor hours. The total indirect labor is budgeted to be $468,000. 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: Direct Labor Number of Setups Cell phones Tablet PCs Total 500 1,100 1,600 Hours per unit 2,000 2,000 4,000 Units 60,000 60,000 120,000 If required, round your answers to the nearest cent. 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. Cell phones $ per unit per unit Tablet PCs 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. Budgeted Activity Cost Activity Rate Setup Production support c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones $ per unit Tablet PCs per setup per direct labor hour d. Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)? The per-unit indirect labor costs in (a) are distorted because is consumed by the products in a different ratio from the direct labor. The number of setups receiving a larger portion of the setup activity cost. The product, the allocated indirect labor will also equal. costing method results in the product with the allocates overhead only on the basis of direct labor hours. Since the direct labor hours equal for each
Transcribed Image Text:Activity-based costing and product cost distortion Crenshaw 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 4,000 direct labor hours. The total indirect labor is budgeted to be $468,000. 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: Direct Labor Number of Setups Cell phones Tablet PCs Total 500 1,100 1,600 Hours per unit 2,000 2,000 4,000 Units 60,000 60,000 120,000 If required, round your answers to the nearest cent. 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. Cell phones $ per unit per unit Tablet PCs 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. Budgeted Activity Cost Activity Rate Setup Production support c. Determine the activity cost per unit for indirect labor allocated to each product under activity-based costing. Cell phones $ per unit Tablet PCs per setup per direct labor hour d. Why are the per-unit allocated costs in (a) different from the per-unit activity cost assigned to the products in (c)? The per-unit indirect labor costs in (a) are distorted because is consumed by the products in a different ratio from the direct labor. The number of setups receiving a larger portion of the setup activity cost. The product, the allocated indirect labor will also equal. costing method results in the product with the allocates overhead only on the basis of direct labor hours. Since the direct labor hours equal for each
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