Reference no: EM132841733
Question - Rooney Electronics produces video games in three market categories: commercial, home, and miniature. Rooney 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 $667,400 Indirect labor wages, supplies, factory utilities, machine maintenance
Machine hours Batch 669,400
Materials handling, inventory storage, labor for setups, packaging, labeling and shipping, scheduling
Number of production orders Product 210,200
Research and development Time spent by research department Facility 486,000 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 $36.80/unit $23.40/unit $30.00/unit -
Direct labor cost $13.70/hour $13.70/hour $17.20/hour -
Number of labor hours 6,400 11,300 1,300 19,000
Number of machine hours 16,000 49,000 6,000 71,000
Number of production orders 210 1,900 690 2,800
Research and development time 11% 16% 73% 100%
Number of units 18,000 43,000 17,000 78,000
Square footage 21,000 52,000 17,000 90,000
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.