ABX Company Produces Two Types of Computer Speakers

question 48

Essay

ABX Company produces two types of computer speakers. The Prestige line is made to provide excellent sound for the most demanding applications. The Standard line is geared toward workplace use and delivers average performance. During its most recent accounting period, the company incurred $50,000 of inspection costs. Its production activities were classified into four cost centers, unit-level, batch-level, product-level, and facility-level. The following cost and cost driver information is provided for the unit-level and batch-level cost centers:
Required:
1) Allocate the inspection cost between the two products assuming the inspection cost is driven by a) only unit-level activities; b) only batch-level activities.2) How should managers of the company determine which allocation is more appropriate?
$$\begin{array} { | l | r | r | } \hline \text { Cost-Center: } & \text { Unit-Level } & \text { Batch-Level } \\\hline & \\\hline \text { Cost Driver. } & \text { Number of direct labor hours } & \text { Number of batches } \\\hline \text { Prestige Product } &4,000 &15 \\\hline \text { Standard Product } &\underline { 6,000 } &\underline { 5} \\\hline { \text { Totals } } &\underline { 10,000 } &\underline { 20} \\\hline & &\\\hline\end{array}$$

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Definitions:

Short Run Aggregate Supply

The total supply of goods and services that businesses in an economy plan on selling during a short time period, assuming that the prices of resources do not change.

Price Level

A mean value of present prices for all goods and services in the economy, indicating the level of inflation or deflation.

Quantity of Output

The total amount of a particular good or service that is produced by a firm or economy.

Long-Run Equilibrium

A state in which all factors of production and costs are variable, and firms in the market are making zero economic profit, indicating no incentive for entry or exit from the market.