Cost Pools Incoming inspection Production Machine setup Shipping Costs $ 210,000 1,650,000 700,000 440,000 The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first month as part of MM. Total direct material costs Total direct labor costs Total machine-hours Activity Drivers Direct material cost Machine-hours Setups Units shipped Total number of setups Total pounds of material Total direct labor-hours Number of units produced and shipped Products 308 $ 60,000 $165,000 60,000 45 17,500 5,500 25,000 510 $ 24,000 $195,000 90,000 80 8,500 8,500 15,000 Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the two products if the current cost system continues to be used? b. A consulting firm has recommended using an activity-based costing system, with the activities based on the cost pools identified by the cost accountant. What are the cost driver rates for the four cost pools identified by the cost accountant? c. What unit product costs will be reported for the two products if the ABC system suggested by the cost accountant's classification of cost pools is used? d. If management should decide to implement an activity-based costing system, what benefits should it expect?
Cost Pools Incoming inspection Production Machine setup Shipping Costs $ 210,000 1,650,000 700,000 440,000 The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first month as part of MM. Total direct material costs Total direct labor costs Total machine-hours Activity Drivers Direct material cost Machine-hours Setups Units shipped Total number of setups Total pounds of material Total direct labor-hours Number of units produced and shipped Products 308 $ 60,000 $165,000 60,000 45 17,500 5,500 25,000 510 $ 24,000 $195,000 90,000 80 8,500 8,500 15,000 Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the two products if the current cost system continues to be used? b. A consulting firm has recommended using an activity-based costing system, with the activities based on the cost pools identified by the cost accountant. What are the cost driver rates for the four cost pools identified by the cost accountant? c. What unit product costs will be reported for the two products if the ABC system suggested by the cost accountant's classification of cost pools is used? d. If management should decide to implement an activity-based costing system, what benefits should it expect?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Transcribed Image Text:Utica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM), and organized as a separate division within the
company. Most manufacturing plants at MM use an ABC system, but UM has always used a traditional product costing system. Bob
Miller, the plant controller at UM, has decided to experiment with ABC and has asked you to help develop a simple ABC system that
would help him decide if it was useful. The controller's staff has identified costs for the first month in the four overhead cost pools
along with appropriate cost drivers for each pool.
Cost Pools
Costs
Incoming inspection $ 210,000
Production
1,650,000
Machine setup
Shipping
700,000
440,000
Activity Drivers
Direct material cost.
Mächine-hours
Setups
Units shipped
The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first
month as part of MM.
Total direct material costs:
Total direct labor costs.
Total machine-hours.
Total number of setups
Total pounds of material
Total direct labor-hours
Number of units produced and shipped.
Products
308
$ 60,000
$165,000
60,000
45
17,500
5,500
25,008
510
$ 24,000
$195,000
90,000
88
8,500
8,500
15,000
Transcribed Image Text:Cost Pools
Incoming inspection
Production
Machine setup
Shipping
$
Costs
210,000
1,650,000
700,000
440,000
Activity Drivers
Direct material cost
Machine-hours
Setups
Units shipped
The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first
month as part of MM.
Total direct material costs
Total direct labor costs
Total machine-hours
Total number of setups
Total pounds of material
Total direct labor-hours
Number of units produced and shipped
Products
308
$ 60,000
$165,000
60,000
45
17,500
5,500
25,000
510
$ 24,000
$195,000
90,000
80
8,500
8,500
15,000
Required:
a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be
reported for the two products if the current cost system continues to be used?
b. A consulting firm has recommended using an activity-based costing system, with the activities based on the cost pools identified by
the cost accountant. What are the cost driver rates for the four cost pools identified by the cost accountant?
c. What unit product costs will be reported for the two products if the ABC system suggested by the cost accountant's classification of
cost pools is used?
d. If management should decide to implement an activity-based costing system, what benefits should it expect?
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