GHI Company produces two products Product X and Product Y and uses a costing system that accumulates all overhead in a single cost pool and allocates it based on direct labor cost. The company has decided to implement ABC having just finished a study that revealed significant amount of overhead cost are related to setup activity and design activity. The number of setups and the number of design hours were selected as the activity drivers for the two new cost pools and direct labor cost will continue as the base for allocating the remaining overhead. Information concerning GHI Company’s most recent year of operation is as follows: Product X Product Y Units produced 73,500 125 Direct Material cost Per unit P 12 P 100 Direct Labor Cost P2,910,000 P90,000 Setups 30 30 Design hours 12,000 3,000 Overhead Setup related P300,000 Design related 900,000 Other 3,300,000 Required: Calculate the total and per unit costs reported for thee two products by the existing costing system Calculate the total and per unit costs reported for the two products by the ABC system. Reconcile the costs reported for Product Y by the two costing system. What percentage of GHI Company’s total overhead is treated differently by the two costing systems? By what percentage did the cost of Product Y change as a result of the change in the system? Calculate each answer to the nearest two decimal places,
- GHI Company produces two products Product X and Product Y and uses a costing system that accumulates all
overhead in a single cost pool and allocates it based on direct labor cost. The company has decided to implement ABC having just finished a study that revealed significant amount of overhead cost are related to setup activity and design activity. The number of setups and the number of design hours were selected as the activity drivers for the two new cost pools and direct labor cost will continue as the base for allocating the remaining overhead. Information concerning GHI Company’s most recent year of operation is as follows:
Product X Product Y
Units produced 73,500 125
Direct Material cost
Per unit P 12 P 100
Direct Labor Cost P2,910,000 P90,000
Setups 30 30
Design hours 12,000 3,000
Overhead
Setup related P300,000
Design related 900,000
Other 3,300,000
Required:
- Calculate the total and per unit costs reported for thee two products by the existing costing system
- Calculate the total and per unit costs reported for the two products by the ABC system.
- Reconcile the costs reported for Product Y by the two costing system.
What percentage of GHI Company’s total overhead is treated differently by the two costing systems? By what percentage did the cost of Product Y change as a result of the change in the system? Calculate each answer to the nearest two decimal places,
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