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 101,000 units of J25P and 40,500 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 26 percent.
| |
J25P |
J40X |
| Direct material |
$1,501,000 |
$2,402,000 |
| Direct labor |
|
|
| Assembly |
$751,000 |
$602,000 |
| Packaging |
991,000 |
362,000 |
| Total direct labor |
$1,742,000 |
$964,000 |
| Direct costs |
$3,243,000 |
$3,366,000 |
| Overhead |
|
|
| Assembly building |
|
|
| Assembling (@ $30 per mh) |
$182,000 |
$902,000 |
| Setting up machine (@ $900 per setup hour) |
36,500 |
361,000 |
| Handling material (@ $3,000 per run) |
24,500 |
121,000 |
| Packaging building |
|
|
| Inspecting and Packing (@ $5 per direct labor-hour) |
302,000 |
115,000 |
| Shipping (@ $1,320 per shipment) |
133,000 |
266,000 |
| Total ABC overhead |
$678,000 |
$1,765,000 |
| Total ABC cost |
$3,921,000 |
$5,131,000 |
| Number of units |
101,000 |
40,500 |
| Unit cost |
$38.82 |
$126.69 |
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.