Question

VidPlayers, Inc. manufactures two types of DVD players, a deluxe model anda standard model. The deluxe model is a multi-format progressive-scan DVD player withnetworking capability, Dolby digital, and DTS decoder. The standard model’s primary fea-ture is progressive-scan. Annual production is 20,000 units for the deluxe and 50,000 unitsfor the standard.Both products require 2 hours of direct labor for completion. Therefore, total annualdirect labor hours are 140,000 or [2 hrs.±(20,000²50,000)]. Expected annual manu-facturing overhead is $980,000. Thus, the predetermined overhead rate is $7 or($980,000³140,000) per direct labor hour. The direct materials cost per unit is $11for the deluxe model and $42 for the standard model. The direct labor cost is $18 perunit for both the deluxe and the standard models.The company’s managers identified six activity cost pools and related cost driversand accumulated overhead by cost pool as follows.

Estimated use of

drivers by product

Activity Cost Pool	Cost Driver	Estimated Overhead	Expected use of Cost Drivers	Deluxe	Standard
Purchasing	Orders	$130,000	500	150	350
Receiving	Kilograms	30,000	20,000	4,000	16,000
Assembling	Number of Parts	370,000	74,000	20,000	54,000
Testing	Number of Tests	115,000	23,000	10,000	13,000
Finishing	Units	140,000	70,000	20,000	50,000
Packing & Shipping	Kilograms	195,000	78,000	17,000	61,000

$980,000

Under traditional product costing, compute the total unit cost of both products.Prepare a simple comparative schedule of the individual costs by product (similar toIllustration 4-4).

(b) Under ABC, prepare a schedule showing the computations of the activity-based over-head rates (per cost driver).

(c) Prepare a schedule assigning each activity’s overhead cost pool to each product basedon the use of cost drivers. (Include a computation of overhead cost per unit, round-ing to the nearest cent.)

(d) Compute the total cost per unit for each product under ABC.

(e) Classify each of the activities as a value-added activity or a non-value-added activity.

(f) Comment on (1) the comparative overhead cost per unit for the two products underABC, and (2) the comparative total costs per unit under traditional costing and ABC

Answer 1