QWERTY 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 labot cost P 2,190,000 P 90,000 Setups 30 30 Design hours 12,000 3,000 Overhead: Setup related P 300,000 Design related P 900,000 Other P 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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QWERTY 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 labot cost	P 2,190,000	P 90,000
Setups	30	30
Design hours	12,000	3,000
Overhead:
Setup related	P 300,000
Design related	P 900,000
Other	P 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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