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After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, 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 102,000 units of the Sport model and 41,000 units of the Pro model in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the Sport and the Pro products by 27 percent.

Cost Drivers and Cost Driver VolumesCenterPoint Manufacturing Facility

		Cost Driver Volume
Activity	Cost Driver	Sport	Pro	Total
Assembly building
Assembling	Machine-hours	6,200	30,200	36,400
Setting up machines	Setup hours	42	420	462
Handling material	Production runs	10	42	52
Packaging building
Inspecting and packing	Direct labor-hours	60,800	23,200	84,000
Shipping	Number of shipments	102	204	306

Third Quarter Unit Cost Report, Activity-Based CostingCenterPoint Manufacturing Facility

	Sport				Pro
Direct material	$	1,502,000			$	2,404,000
Direct labor
Assembly	$	752,000			$	604,000
Packaging		992,000				364,000
Total direct labor	$	1,744,000			$	968,000
Direct costs	$	3,246,000			$	3,372,000
Overhead
Assembly building
Assembling (@ $30 per MH)	$	186,000			$	906,000
Setting up machine (@ $900 per setup hour)		37,800				378,000
Handling material (@ $3,000 per run)		30,000				126,000
Packaging building
Inspecting and packing (@ $5 per direct labor-hour)		304,000				116,000
Shipping (@ $1,320 per shipment)		134,640				269,280
Total ABC overhead	$	692,440			$	1,795,280
Total ABC cost	$	3,938,440			$	5,167,280
Number of units		102,000				41,000
Unit cost	$	38.61			$	126.03

Required:

a. Compute the amount of overhead allocated to the Sport and the Pro drones 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.

	Model Total ABC Overhead Sport Pro

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