Bryant Electronics produce video games in three product lines

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Bryant Electronics produce video games in three product lines

Activity-Based CostingBryant Electronics produce video games in three product lines: commercial, home, and miniature. Bryant has traditionally allocated overhead costs to the three products using the company wide allocation base of direct labor hours. The company recently implemented an ABC system when it installed computer-controlled assembly stations that rendered the traditional costing system ineffective. In implementing the ABC system, the company identified the activity cost pools and cost drivers that appear on the next page.

Total Cost Types of Costs Cost Driver

$360,000 Indirect labor wages, supplies, factory utilities, Machine hours

machine maintenance

$194,000 Materials handling, inventory storage, labor for setups, Number of production orders

packaging, labeling and shipping, scheduling

$105,600 Research and development Time spent by research dept.

$300,000 Rent, general utilities, maintenance, Square footage

administrative salaries

Additional data for each of the product lines:

Commercial Home Miniature Total

Direct materials cost. . . . . . . . . . . $18.00/unit $12.00/unit $15.00/unit —

Direct labor cost . . . . . . . . . . . . . . $7.20/hour $7.20/hour $9.00/hour —

Number of labor hours. . . . . . . . . 6,000 12,000 2,000 20,000

Number of machine hours. . . . . . 10,000 45,000 25,000 80,000

Number of production orders . . 200 2,000 800 3,000

Research and development time 10% 20% 70% 100%

Number of units . . . . . . . . . . . . . 15,000 45,000 14,000 74,000

Square footage. . . . . . . . . . . . . . . 20,000 50,000 30,000 100,000

Required:

a. Determine the total cost and cost per unit for each product line, assuming that overhead costs are allocated to each product line using direct labor hours as a companywide allocation base. Show your computations.

b. Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Show your computations.

c. Given that the combined total cost is the same using either allocation method, why is an ABC system with many different allocation rates usually better than a traditional system with a single companywide overhead rate?