Churchill Products is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. The company’s cost accountant has identified three overhead cost pools along with appropriate cost drivers for each pool. Cost Pools Costs Activity Drivers Utilities $ 310,000 62,000 machine-hours Scheduling and setup $ 290,000 580 setups Material handling $ 795,000 1,590,000 pounds of material The company manufactures three models of water basins (Oval, Round, and Square). The plans for production for the next year and the budgeted direct costs and activity by product line are as follows. Products Oval Round Square Total direct costs (material and labor) $80,000 $80,000 $70,000 Total machine-hours 30,000 10,000 22,000 Total number of setups 60 300 220 Total pounds of material 490,000 290,000 810,000 Total direct labor-hours 3,500 2,000 4,500 Number of units produced 4,400 2,000 6,000 Required: (Do not rund intermediate calculations. Round "Per unit cost" answers to 2 decimal places.) a. The current cost accounting system charges overhead to products based on direct labor-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? Oval Round Square Total Cost Per unit cost b. What are the cost driver rates for the three cost pools identified by the cost accountant? Utilities per machine-hours Scheduling and setup per steup Material Handling per pound c. What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's classification of cost pools is used? Oval Round Square Total Cost Per unit cost
Churchill Products is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. The company’s cost accountant has identified three
Cost Pools | Costs | Activity Drivers | |
Utilities | $ 310,000 | 62,000 | machine-hours |
Scheduling and setup | $ 290,000 | 580 | setups |
Material handling | $ 795,000 | 1,590,000 | pounds of material |
The company manufactures three models of water basins (Oval, Round, and Square). The plans for production for the next year and the budgeted direct costs and activity by product line are as follows.
Products | |||
Oval | Round | Square | |
Total direct costs (material and labor) | $80,000 | $80,000 | $70,000 |
Total machine-hours | 30,000 | 10,000 | 22,000 |
Total number of setups | 60 | 300 | 220 |
Total pounds of material | 490,000 | 290,000 | 810,000 |
Total direct labor-hours | 3,500 | 2,000 | 4,500 |
Number of units produced | 4,400 | 2,000 | 6,000 |
Required: (Do not rund intermediate calculations. Round "Per unit cost" answers to 2 decimal places.)
a. The current cost accounting system charges overhead to products based on direct labor-hours. What unit product costs will be reported for the three products if the current cost system continues to be used?
Oval | Round | Square | |
Total Cost | |||
Per unit cost |
b. What are the cost driver rates for the three cost pools identified by the cost accountant?
Utilities | per machine-hours | |
Scheduling and setup | per steup | |
Material Handling | per pound |
c. What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's classification of cost pools is used?
Oval | Round | Square | |
Total Cost | |||
Per unit cost |
d. If management should decide to implement an activity-based costing system, what benefits should it expect?
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