1.) Telecom Company would like to use activity-based costing to allocate overhead, rather than using one plant-wide rate. The company produced 6,000 cell phones (sells for $150) and 2,000 smart phones (sells for S350). The following estimates are for the activities and related cost drivers identified as having the greatest impact on overhead costs
|
|
|
Estimated
|
Estimated Cost Driver Activity
|
|
|
|
Overhead
|
Cell
|
Smart
|
Total
|
|
Activity
|
Cost Driver
|
Costs
|
Phone
|
Phone
|
|
|
|
Number of
|
|
|
|
|
|
Production runs
|
production runs
|
$200,000
|
20
|
5
|
25
|
|
Quality inspections
|
Inspection hrs
|
150,000
|
600
|
1,400
|
2000
|
|
Packaging Dept
|
# of units shipped
|
200 000
|
6,000
|
2,000
|
8000
|
|
Total
|
|
$550,009
|
|
|
|
Required:
a. What is the overhead cost per unit, for each type of phone?
b. Why would the company choose to use activity based costing over a predetermined OH rate?
c. What could the company use this information for?