After reviewing the new activity—based costing system that.

After reviewing the new activity—based costing system that Nancy Chen has implemented at lVC’s CenterF’oint manufacturing facility, Tom Spencer: the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 110,000 units ofthe Sport model and 45,000 units of the Pro model in the first quarter. He believes that with his more efficient setup routine. he can reduce the number of setup hours for both the Sport and the Pro products by one-third. Cost Drivers and Cost Driver l«I’olumes—CenterF’oint Manufacturing Facility Cost Driver Volume activity Cost Driver Sport Assembly building Assembling Machine-hours ?,000 Setting up machines Setup hours 50 Handling material Production runs 18 Packaging building Inspecting and packing Direct labor-hours 64,000 Shipping Number oF shipments 110 Pro 31,000 500 50 24,800 220 Third Quarter Unit Cost Report, Activity—Based lCosting—CenterF’oint Manufacturing Facility Direct material Direct labor Assembly Packaging Total direct labor Direct costs Overhead Assembly building fissembling (@ $30 per HH] Setting up machines E@ 5000 per setup hour) Handling material (0 53,000 per run] Packaging building Inspecting and packing {Q 55 per direct labor-hour} Shipping (@ $1,328 per shipment] Total ABC overhead Total ABC cost Number of units Unit cost Required: Sport 5 1,513,333 Total 38,000 550 63 88,300 330 Pro $ 2,423,333 $ 133,333 3 323,333 1,333,333 333,333 5 1,133,333 3 1,333,333 3 3,233,333 3 3,423,333 3 213,333 3 333,333 45,333 453,333 54,333 153,333 323,333 124,333 145,233 233,433 $ ??4,233 $ 1,344,433 5 4,344,233 3 5,334,433 113,333 45,333 $ 33.1? 3 113.21 3. Compute the amount of overhead allocated to the Sport and the Pro drones for the first quarter using activity—based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at $900. ——

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