Question

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 112,000 units of J25P and 46,000 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 23 percent.

	J25P			J40X
Direct material	$	1,512,000		$	2,424,000
Direct labor
Assembly	$	762,000		$	624,000
Packaging		1,002,000			384,000
Total direct labor	$	1,764,000		$	1,008,000
Direct costs	$	3,276,000		$	3,432,000
Overhead
Assembly building
Assembling (@ $30 per mh)	$	204,000		$	924,000
Setting up machine (@ $900 per setup hour)		42,000			372,000
Handling material (@ $3,000 per run)		30,000			132,000
Packaging building
Inspecting and Packing (@ $5 per direct labor-hour)		324,000			126,000
Shipping (@ $1,320 per shipment)		144,000			288,000
Total ABC overhead	$	744,000		$	1,842,000
Total ABC cost	$	4,020,000		$	5,274,000
Number of units		112,000			46,000
Unit cost	$	35.89		$	114.65

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.

Answer 1