The Manufacturing Division of an Electronics Company Uses Activity-Based Costing

question 45

Essay

The manufacturing division of an electronics company uses activity-based costing.The company has identified three activities and the related cost drivers for indirect production costs.
$\begin{array}{ll}\text { Activity }&\text { Cost Driver }\\\text { Activity 1 } & \text { Direct materials cost } \\\text { Activity 2 } & \text { Direct labor cost } \\\text { Activity 3 } & \text { Kilowatt hours }\end{array}$
Three types of products are produced.Direct costs and cost-driver activity for each product for a month are as follows:
$\begin{array}{llll}&\text { Product A }&\text { Product B }&\text { Product C }\\\text { Direct materials cost } & \$ 75,000 & \$ 50,000 & \$ 125,000 \\\text { Direct labor cost } & \$ 6,000 & \$ 1,000 & \$ 3,000 \\\text { Direct labor hours } & 2,000 & 1,000 & 2,000 \\\text { Kilowatt hours } & 150,000 & 200,000 & 150,000\end{array}$
Indirect production costs for the month are as follows:
$\begin{array}{ll}\text { Activity 1 } & \$ 30,000 \\\text { Activity } 2 & 20,000 \\\text { Activity 3 } & {16,000} \\\text { Total } &{\$ 66,000}\end{array}$
Required:
A) Compute the indirect production costs allocated to each product using the ABC system.
B) Compute the indirect production costs allocated to each product using a traditional costing system. Assume indirect production costs are allocated to each product using the cost driver: direct labor hours.

• A) Compute the indirect production costs allocated to each product using the ABC system.
• B) Compute the indirect production costs allocated to each product using a traditional costing system. Assume indirect production costs are allocated to each product using the cost driver: direct labor hours.

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Definitions:

Continuous Probability Density Functions

Mathematical functions that describe the likelihood of all possible values of a continuous random variable.

Z-score

A numerical indicator that shows how a value compares to the average of a set of values, expressed as the number of standard deviations away from the mean.

Normally Distributed

A type of continuous probability distribution for a real-valued random variable, characterized by a symmetric bell-shaped curve.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how much the individual values deviate from the mean.