Zeus management realizes that moving to camera lenses

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Zeus’ management realizes that moving to camera lenses is a major shift in their product and market focus. Plus, they know that factory personnel have complained about the increased coordination required for producing lenses. Thus, management wants us to conduct a more detailed study of product costs.We collect the following data. EyepiecesBinocularsCamera LensSales volume (units)24,00021,0007,000Machine hours2,4006,0008,000batch size2,0001,400500# of batches121514# of Components in each unit of product2620# of receiving transactions153550Analyzing the overhead, you discover the following:ItemAmountLabor related$302,200 Machine related352,600 Production order98,650 First part inspection75,470 Parts administration167,500 Inventory management140,000 Receiving and shipping57,450 General administration106,380Total$1,300,250You are wondering how best to allocate these costs into cost pools. You settle on forminga total of six pools.Pool 1:Labor related costs. Experience shows that for Zeus Optical direct labor hours is what drives these costs and causes them to vary.Pool 2: Machine related costs. These are driven by machine hoursPool 3:Cost related to executing a production order (this would include production orders and first part inspections), allocated using the number of batches.Pool 4: Related to parts administration, which will be allocated based on the number of components in each product4
ACCT 2332 ABC PROJECT SUMMER 2012Pool 5:Costs related to inventory management, receiving and shipping. These costs are allocated using the number of transactions per product line (= components × number of transactions). Pool 6:Facility level costs allocated equally among the 3 product lines.Requirements of parts B to G.Now use activity base costing:B.Summarize the total amounts in each of the six cost pools and then divide by the cost driver activity (from the data we collected) to determine the per driver unit for each cost pool (except the facility level cost pool has no cost driver so it will not be allocated)5 Step 1.

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