Reference no: EM13299101

VideoPlus, Inc. manufactures two types of DVD players, a deluxe model and a standard model. The deluxe model is a multi-format progressive-scan DVD player with networking capability, Dolby digital, and DTS decoder.

The standard model's primary feature is progressive-scan. Annual production is 50,000 units for the deluxe and 20,000 units for the standard. Both products require 2 hours of direct labor for completion.

Therefore, total annual direct labor hours are 140,000 [2 hrs. _ (20,000 _ 50,000)]. Expected annual manufacturing overhead is $1,050,000. Thus, the predetermined overhead rate is $7.50 ($1,050,000 _ 140,000) per direct labor hour. The direct materials cost per unit is $42 for the deluxe model and $11 for the standard model. The direct labor cost is $18 per unit for both the

deluxe and the standard models. The company's managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

			Expected
			Use of	Expected Use of
		Estimated	Cost	Drivers by Product
Activity Cost Pool	Cost Driver	Overhead	Drivers	Standard	Deluxe
Purchasing	Orders	$ 126,000	400	100	300
Receiving	Pounds	30,000	20,000	4,000	16,000
Assembling	Number of parts	444,000	74,000	20,000	54,000
Testing	Number of tests	115,000	23,000	10,000	13,000
Finishing	Units	140,000	70,000	20,000	50,000
Packing and shipping	Pounds	195,000	80,000	18,000	62,000
		$1,050,000

Instructions

(a) Under traditional product costing, compute the total unit cost of both products. Prepare a simple comparative schedule of the individual costs by product

(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).

(c) Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)

(d) Compute the total cost per unit for each product under ABC.

(e) Classify each of the activities as a value-added activity or a non-value-added activity.

(f) Comment on (1) the comparative overhead cost per unit for the two products under ABC, and (2) the comparative total costs per unit under traditional costing and ABC.