1) 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.
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Mirrors
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Lenses
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Units produced
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30
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30
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Material moves per product line
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4
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16
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Direct-labor hours per unit
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250
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250
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The total budgeted material handling cost for the year is $90,000.
Required:
a. 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?
b. Answer the same question as in requirement (1), but for lenses.
c. 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.
d. Answer the same question as in requirement (c) above, but for one lens instead of one mirror.
e. Why is the cost allocated in (c) & (d) differ from cost allocated in (a) & (b)?