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VideoPlus Inc 126000

Price: $2.50

VideoPlus, Inc. manufactures two types of DVD players, a deluxe model and a
standard model. The deluxe model is a multi-format progressive-scan DVD player with
networking capability, Dolby digital, and DTS decoder. The standard model’s primary feature
is progressive-scan. Annual production is 50,000 units for the deluxe and 20,000 units
for the standard.

Both products require 2 hours of direct labor for completion. Therefore, total annual
direct labor hours are 140,000 [2 hrs. x (20,000 + 50,000)]. Expected annual manufacturing
overhead is $1,050,000. Thus, the predetermined overhead rate is $7.50 ($1,050,000/
140,000) per direct labor hour. The direct materials cost per unit is $42 for the deluxe
model and $11 for the standard model. The direct labor cost is $18 per unit for both the
deluxe and the standard models.

The company’s managers identified six activity cost pools and related cost drivers and
accumulated overhead by cost pool as follows.

(a) Under traditional product costing, compute the total unit cost of both products.
Prepare a simple comparative schedule of the individual costs by product (similar to
Illustration 4-10 on page 152).
(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead
rates (per cost driver).
(c) Prepare a schedule assigning each activity’s overhead cost pool to each product based
on the use of cost drivers. (Include a computation of overhead cost per unit, rounding
to the nearest cent.)
(d) Compute the total cost per unit for each product under ABC.
(e) Classify each of the activities as a value-added activity or a non–value-added activity.

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