Precision Lens Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controllable estimates the amount of overhead that should be allocated to the individual product lines from the following information.
Mirrors
Lenses
Units produced
30
30
Material moves per product line
4
16
Direct-labor hours per unit
250
250
The total budgeted material handling cost for the year is $90,000.
Required:
Under a costing system that allocates overhead on the basis of direct-labor hours, the material handling costs allocated to one mirror would be what amount?
Answer the same question as in requirement (1), but for lenses.
Under activity-based costing (ABC), the material-handling costs allocated to one mirror would be what amount? The cost driver for the material handling activity is the number of material moves.
Answer the same question as in requirement (c) above, but for one lens instead of one mirror.
Why is the cost allocated in (c) & (d) differ from cost allocated in (a) & (b)?
Clark & Schiffer LLP perform activities related to e-commerce consulting and information systems in Vancouver, British Columbia. The firm, which bills $140 per hour for services performed, is in a very tight local labor market and is having difficulty finding quality help for its overworked professional staff. The cost per hour for professional staff time is $50. Selected information follow:
Billable hours to clients for the year totaled 6,000, consisting of: information systems services, 3,600; e-commerce consulting, 2,400.
Administrative cost of $381,760 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $207,000; in-house computing, $145,000; and miscellaneous office charges, $29,760.
A recent analysis of staff support costs found a correlation with the number…