Professional Documents
Culture Documents
A Radio With A Built-In CD Player (Called A CD Unit)
A Radio With A Built-In CD Player (Called A CD Unit)
!!! You should fill in all yellow cells and put your answers instead of red questions.
The ABC team gathered basic information relating to the company's two p
selling 50,000 DVD units and 200,000 CD units. Both products require two direct
c
Number of units
DVD units: 50000
CD units 200000
Total direct labour-hours
Costs for direct materials and direct labor for one unit of each product are given be
DVD Units
Direct materials $90
Direct labor (at $10 per DLH) $20
The company's estimated manufacturing overhead costs for the current year to
for each product, the more complex DVD units require more machine time,
manufacture the DVD units in smaller batches;
The company has always used direct labo
The company's estimated manufacturing overhead costs for the current year to
for each product, the more complex DVD units require more machine time,
manufacture the DVD units in smaller batches;
The company has always used direct labo
With these data in hand, the ABC team was prepared to begin the design of th
com
Under the company's existing costing system, the predetermined overhead rate wo
20 (calculate) per direct labor-hour, computed as follows:
Using this rate, the ABC team computed the unit product costs as given below (fill i
activity based
DVD units
Direct materials 90
Direct labour 20
Manufacturing overhead (Number of
DLHs*Predetermined overhead rate) 40
Unit product cost 150
Com
The ABC team then analyzed Comtek Sound, Inc.'s operations and identified six m
the activities are presented in Exhibit X. That exhibit shows the amount of overhea
The machine setups activity cost pool, for example, was assigned $ 1 ,600.000 in o
be for DVD units and 1,000 will be for CD u
The ABC team then computed an activity rate for each activity. The activity rate
cost in the activity cost pool, $ 1 ,600,000, by the expected amount of activity, 4,0
system. Please c
Once the activity rates were calculated, it was easy to compute the overhead cost t
to DVD units was determined by multiplying the activity rate of $400 per setup b
machine setup costs to be assigned to the DVD units. Note from the exhibit tha
assigned to each DVD unit and $XXX (your calculations) to each CD unit. The ABC
comparison, the exhibit also shows the unit product costs derive
costs to the products. The ABC team membe
In the past, the company has been charging $40.00 in overhead cost to a unit of e
only $XXX to each CD unit. Thus, unit costs have been badly distorted as
been suffering a ????on the DVD units without knowing it because the cost of
to ??????????? assign overhead costs to each product. Alth
on the CD units, it turns out that we were ????????????? for these units because o
the DVD units, but now we realize that our prices have been way too????? becaus
eve
Exhibit X E
Es
O
Compu
(a)
Estimated
Overhead
Activities Cost
Labor related (direct labor-hours)
Machine related (machine-hours)
Machine setups (setups)
Production orders (orders)
Parts administration (part types)
General factory (machine-hours)
f red questions.
ating to the company's two products. A summary of some of this information follows. For the current
th products require two direct labor-hours to complete. Therefore, the company plans to work 500
current year, computed as follows:
CD Units
$50
$20
ad costs for the current year total $10,000,000. The ABC team discovered that although the same amou
s require more machine time, more machine setups, and more testing than the CD units. Also, the tea
he DVD units in smaller batches; consequently, they require more production orders than the CD units.
pany has always used direct labor-hours as the base for assigning overhead costs to its products.
redetermined overhead rate would be
CD units
50
20
40
110
s operations and identified six major activities to include in the new activity-based costing system. Cost an
bit shows the amount of overhead cost for each activity cost pool, along with the expected amount of acti
e, was assigned $ 1 ,600.000 in overhead cost. The company expects to complete 4,000 setups during the
units and 1,000 will be for CD units. Data for other activities are also shown in the exhibit.
each activity. The activity rate of $400 per machine setup, for example, was computed by dividing the to
expected amount of activity, 4,000 setups. This process was repeated for each of the other activities in th
system. Please calculate thee other activity rates.
$
800000 100000
2100000 300000
1600000 3000
3150000 800
350000 400
2000000 300000
10000000
(a) (b)
Estimated Total a/b
Overhead Expected Activity
Cost Activity Rate
800000 500000 1.6
2100000 1000000 2.1
1600000 4000 400
3150000 1200 2625
350000 700 500
2000000 1000000 2
25.55 40 40
95.55 150 110
d a DVD unit). Both of these products are sold to automobile
ave been bidding less than Comtek Sound has been willing to
a secondary product. The marketing manager has been
ving Comtek Sound with just the low-volume DVD business.
ng to Comtek Sound's conventional accounting system that
system might be distorting the relative costs of the CD player
verhead costs are identical under the conventional costing
op an activity-based costing system to more accurately
ws. For the current year, the company's budget provides for
plans to work 500,000 direct labor-hours (DLHs) during the
Expected Activity
CD Units Total
400000 500000
700000 1000000
1000 4000
400 1200
300 700
700000 1000000