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:

Multiple-Departmental Overhead Rates

A cost accounting approach that assigns overhead costs to products or services based on the specific departmental resources they consume.

Building Depreciation

The systematic allocation of the cost of a building over its useful life, reflecting its consumption, wear and tear, or obsolescence.

Responsibility Centres

Parts of an organization tasked with specific duties and responsibilities, wherein performance is measured based on predetermined objectives.

Square Metres

A unit of area measurement equivalent to a square that is one meter on each side.