The wireless phone manufacturing division of a consumer electronics company uses activity-based costing. For simplicity, assume that its accountants have identified only the following three activities and related cost drivers for indirect production costs: Three types of cell phones are produced: Senior, Basic, and Deluxe. Direct costs and cost-driver activity for each product for a recent month are as follows: Indirect production costs for the month were as follows: . Requirement 1. Compute the indirect production costs allocated to each product with the ABC system. Determine the formula, then compute the indirect cost rates for materials handling, engineering and power costs. (Round the rates to two decimal places, .XX.) / = Indirect cost allocation rate Materials handling / = Engineering / = Power / = Now determine the indirect production costs allocated to each product, beginning with the Senior product, with the ABC system. Indirect production costs: Senior Materials handling Engineering Power Total indirect costs allocated Basic Deluxe Requirement 2. Suppose all indirect production costs had been allocated to products in proportion to their direct-labor costs. Compute the indirect production costs allocated to each product. Begin by determining the indirect cost allocation rate assuming all indirect production costs are allocated to products in proportion to their direct-labor costs using the same formula labels as you determined in requirement 1. Total indirect production / = Now determine the total indirect production costs allocated to each product assuming all indirect production costs are allocated to products in proportion to their direct-labor costs. Senior Basic Deluxe Indirect production costs allocated Requirement 3. In which product costs, those in requirement 1 or those in requirement 2, do you have the most confidence? Why? The product costs from ▼ requirement 1, using an ABC requirement 2, using a traditional cost requirement 2, using an ABC system, is likely more accurate since it ▼ allocates indirect production costs using a single cost pool. allocates indirect production costs using multiple cost pools to account for the different production activities. is the simpliest to understand. results in the lower estimated cost of the products. results in the higher estimated cost of the products. More Less DATA Senior Basic Deluxe Direct-materials cost $60,000 $50,000 $50,000 Direct-labor cost $27,630 $15,350 $18,420 Kilowatt hours 80,000 170,000 350,000 Engineering change notices 27 6 47 Materials handling $12,800 Engineering 104,000 Power 6,000 Total indirect production cost $122,800
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