Question

# After reviewing the new activity-based costing system that Janis McGee has implemented at Joplin Industries’s Port...

After reviewing the new activity-based costing system that Janis McGee has implemented at Joplin Industries’s Port Arthur manufacturing facility, Kris Kristoff, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 106,000 units of J25P and 43,000 units of J40X in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the J25P and the J40X products by 31 percent.

 J25P J40X Direct material \$ 1,506,000 \$ 2,412,000 Direct labor Assembly \$ 756,000 \$ 612,000 Packaging 996,000 372,000 Total direct labor \$ 1,752,000 \$ 984,000 Direct costs \$ 3,258,000 \$ 3,396,000 Overhead Assembly building Assembling (@ \$30 per mh) \$ 192,000 \$ 912,000 Setting up machine (@ \$900 per setup hour) 39,000 366,000 Handling material (@ \$3,000 per run) 27,000 126,000 Packaging building Inspecting and Packing (@ \$5 per direct labor-hour) 312,000 120,000 Shipping (@ \$1,320 per shipment) 138,000 276,000 Total ABC overhead \$ 708,000 \$ 1,800,000 Total ABC cost \$ 3,966,000 \$ 5,196,000 Number of units 106,000 43,000 Unit cost \$ 37.42 \$ 120.84

Required:

Compute the amount of overhead allocated to the J25P and the J40X cameras for the first quarter using activity-based costing. Assume that all events are the same in the first quarter as in the third quarter except for the number of setup hours. Assume the cost of a setup hour remains at \$900.

 Overhead J25P J40X Assembly building Assembling (@30/MH) 1,92,000 9,12,000 Setting up machine (@900 per setup hour) 39,000*69% 26800 366,000*69% 246560 Handling material (@ 3,000 per run) 27,000 1,26,000 2,45,910 12,90,540 Packaging Building Inspecting and packaging (@5per direct labor hour) 3,12,000 1,20,000 Shipping (@1,320 per shipment) 1,38,000 2,76,000 Total ABC Overhead 695,910 1686540

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