Cain Components manufactures and distributes various plumbing products used in h
ID: 2537661 • Letter: C
Question
Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information. The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were: Cost Pools Receiving Manufacturing Machine setup Shipping Costs Activity Drivers $630,000 Direct material cost 6,000,000 Machine-hours 900,000 Production runs $ 1,750,000 Units shipped In this particular area, Cain produces two of its many products: Standard and Deluxe. The following are data for production for the latest full year of operationsExplanation / Answer
Answer
Total Machine Hours = 130000+120000 = 250000 hours
Total Overhead Cost
Receiving 630000
Manufacturing 6000000
Machine Setup 900000
Shipping 1750000
Total 9280000
Overhead Cost per Machine hour =$9280000 / 250000 = $37.12
A.
Statement of Unit Cost under Current Cost Accounting System
B.
Statement of Unit Cost under Activity Based Cost Accounting System
(630000/420000*100)
150% of Material Cost
6000000/250000=
$24
1750000/35000=
$50
Particulars Rate Standard Delux Direct Material Cost 255000 165000 Direct Labour Cost 670000 270000 Direct Cost 925000 435000 Overhead $37.12 4825600 4454400 Total Production Cost 5750600 4889400 Units Produced 20000 15000 Production Cost per unit 287.53 325.96