Question

PoseiDon Inc. (PDI) recently started operations to obtain a share of the growing golfing market. PDI manufactures two models of specialty drivers: The X1 model and the X2 model. The company was formed as a partnership by two professional engineers and a professional golfer, none of whom had any accounting experience. The business has been very successful, and to cope with the increased level of activity, the partners have hired a professional accountant as their controller. One of the first improvements the controller wants is an update of the costing system, changing from a single overhead application rate using direct labour-hours to activity-based costing. The controller has identified the following three activities as cost drivers, along with the related cost pools:

Model	# of Materials Required	# of Product Inspections	# of Orders Shipped
X1	460	170	167
X2	620	240	129
Total Costs in Pool	$594,000	$82,000	$185,000

Required:

Using ABC, prepare a schedule that shows the allocation of the costs of each cost pool for each model. Show your calculations.

Answer 1