Telecom Company Produces a Cell Phone That Sells for $150,and

question 64

Essay

Telecom Company produces a cell phone that sells for $150,and a smart phone that sells for $350.Last year,total overhead costs of $550,000 were allocated based on direct labor hours.A total of 12,000 direct labor hours were required last year to build 6,000 cell phones (2 hours per unit),and 10,000 direct labor hours were required to build 2,000 smart phones (5 hours per unit).Total direct labor and direct materials costs for last year were:

Management of Telecom Company would like to use activity-based costing to allocate overhead rather than using one plantwide rate based on direct labor hours.The following estimates are for the activities and related cost drivers identified as having the greatest impact on overhead costs.

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Definitions:

Demand

The quantity of a particular good or service that consumers are willing and able to purchase at a given price level.

Budget Line

A graphical representation of all possible combinations of two goods which can be purchased with a given budget and prices.

Two-Product Case

A scenario in economic analysis focusing on the effects of changes in production levels, costs, and demand for two products simultaneously.

Change in Income

A variation in an individual's or household's earnings over a specific time frame.