Question

Walton Electronics produces video games in three market categories: commercial, home, and miniature. Walton 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:

    

Category		Total Pooled Cost			Types of Costs	Cost Driver
Unit		$	765,400		Indirect labor wages, supplies, factory utilities, machine maintenance	Machine hours
Batch			312,900		Materials handling, inventory storage, labor for setups,packaging, labeling and shipping, scheduling	Number of production orders
Product			210,300		Research and development	Time spent by research department
Facility			573,400		Rent, general utilities, maintenance, facility depreciation, admin. salaries	Square footage

     
Additional data for each of the product lines follow:     

	Commercial				Home				Miniature				Total
Direct materials cost	$	36.90	/unit		$	23.40	/unit		$	29.30	/unit			—
Direct labor cost	$	14.70	/hour		$	14.70	/hour		$	17.10	/hour			—
Number of labor hours		5,700				11,200				2,100				19,000
Number of machine hours		17,000				50,000				22,000				89,000
Number of production orders		270				1,900				630				2,800
Research and development time		11	%			23	%			66	%			100	%
Number of units		18,000				42,000				17,000				77,000
Square footage		17,000				46,000				31,000				94,000

    
Required

1. 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.

2. 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.

Answer 1

Total cost, cost per unit and combined cost using overhead rate:

Workings for ABC Allocation:

Total cost, cost per unit and combined cost using ABC System:

Total cost, cost per unit and combined cost using overhead rate: