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Question: A Company manufactures smartphones. It makes two different models: A Model and the B Model. Data below.
A Model
B Model
Annual Production (units)
400,000
50,000
Direct labor hours per unit
0.25
0.50
Direct materials pounds per unit
0.05
0.10
Direct labor cost per unit
$6
$20
Direct materials cost per unit
$50
$90
Cost Pool
Cost
Cost Driver
A
Model
B
Materials ordering
$2,000,000
# of purchase orders
18,000
2,000
Equipment setup
3,000,000
# of setups
900
100
Quality control
1,000,000
# of inspections
800
200
Total overhead costs
$6,000,000
Compute the total cost of one B Model if ABC principles are used to allocate overhead costs.
Compute the total cost of one B Model if all overhead costs are allocated based on pounds of direct material.
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