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

question 26

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:
$\begin{array}{lrr}& \underline{\text { Cell Phone} }& \underline{\text {Smart Phone }}\\\text { Direct materials } & \$ 270,000 & \$ 160,000 \\\text { Direct labor } & 300,000 & 200,000\end{array}$

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.

(1) Calculate the direct materials cost per unit and direct labor cost per unit for each product.

(2) a. Using the plantwide allocation method, calculate the predetermined overhead rate and determine the overhead cost per unit for the cell phone and smart phone products.

b. What is the product cost per unit for the cell phone and smart phone products?

(3) a. Using the activity-based costing allocation method, calculate the predetermined overhead rate for each activity.
b. Using the activity-based costing allocation method, allocate overhead to each product. Determine the overhead cost per unit
c. What is the product cost per unit for the cell phone and smart phone products?

(4) Calculate the per unit profit for each product using the plantwide approach and the activity-based costing approach. Comment on the difference in the results between the two approaches

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Definitions:

Cephalocaudal

A principle of physical growth that states development progresses from the head down to the rest of the body.

Proximodistal

A pattern of development where growth starts at the center of the body and moves towards the extremities.

Locomotion

Movement from one place to another.

Neuron's Cell Body

The part of a neuron that contains the nucleus and the bulk of the cytoplasm, responsible for the cell's metabolic activity.