The Jones Company manufactures two separate product lines: Segways and Hoverboards. The annual production and sales of Segways is 800 units, while 2,400 Hoverboards are produced and sold each year. The company has been using a traditional, fairly simplistic way of allocating (applying) its total manufacturing overhead costs between the Segway and Hoverboard product lines by simply apportioning its total overhead expenses based upon the number of direct labor hours worked in the factory for each of the two separate products.
However, Jones' management is now looking at the possibility of instead changing to an activity-based costing (ABC) approach for its products. To implement activity-based costing, the company has identified three major cost pools comprising its manufacturing overhead: production line set-up costs, clean-up costs, and tear-down costs. The following data table was compiled for these cost pools to summarize the estimated activity and associated expense amounts for the total annual overhead:
|
Expected Activity
|
|
Activity Cost Pool
|
Total Overhead Cost
|
Segways
(# of "events")
|
Hoverboards
(# of "events")
|
Total
(# of "events")
|
|
Production line set-up costs
|
$52,000
|
600
|
2,000
|
2,600
|
|
Production line clean-up costs
|
$19,500
|
150
|
500
|
650
|
|
Production line tear-down costs
|
$6,500
|
600
|
2,000
|
2,600
|
Note that there are three parts to this question and it extends onto the next page.
Part A. Using the table of estimates provided above for the anticipated activities related to overhead, calculate the activity rate for each of the three cost pools. In other words, you will calculate three different answers: the average cost (dollars) for each "set-up event," cost for each "clean-up event," and cost for each "tear-down event."
Part B. Specifically for the Hoverboards, what is the total activity-based cost for each of the three individual activity cost pools: the set-ups, clean-ups, and tear-downs? Show the calculation for each of these three activity totals. Hint: you'll need to use results from Part A plus other data from the table.
Part C. Specifically for the Hoverboards, what are the annual total overhead costs based upon the activity-based costing analysis? Also, what is the overhead cost per unit (for Hoverboards)? Hint: you'll need to use the results from Part B along with some other given data, and simply assume that the total overhead costs are comprised of the total set-up costs, clean-up costs, and tear-down costs.