Cain Components manufactures and distributes various plumbing products used in h
ID: 2562137 • 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:
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 operations:
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? (Do not round intermediate calculations.)
b. The intern suggests an ABC system using the cost drivers identified above. What unit product costs will be reported for the two products if the ABC system is used?
Cost Pools Costs Activity Drivers Receiving $ 870,000 Direct material cost Manufacturing 8,820,000 Machine-hours Machine setup 1,155,000 Production runs Shipping $ 1,755,000 Units shippedExplanation / Answer
ANS 1 traditional costing Products Standard Deluxe Total direct material costs 335,000 245,000 Total direct labor costs 830,000 430,000 Manufacturing overhead 8,700,000 3,900,000 (290000*30) (130000*30) Total product cost T 9,865,000 4,575,000 No. of units produced N 25,000 20,000 Unit product Cost T/N 394.60 228.75 Predetermined overhead rate 30.0 per hour 12600000/420000 Standard Deluxe Total Total machine-hours 290,000 130,000 420,000 Total number of setups 85 125 210 Total pounds of material 32,000 16,000 48,000 Total direct labor-hours 8,000 5,000 13,000 Number of units produced and shipped 25,000 20,000 45,000 Cost allocated Standard Deluxe Cost Pools Costs Estimated cost Activity Rate Activity Cost allocated Activity Cost allocated Receiving 870,000 Direct material cost 580,000 1.5 335,000 502500 245,000 367500 Manufacturing 8,820,000 Machine-hours 420,000 21 290,000 6090000 130,000 2730000 Machine setup 1,155,000 Production runs 210 5500 85 467500 125 687500 Shipping 1,755,000 Units shipped 45,000 39 25,000 975000 20,000 780000 Estimated manufacturing overhead 12,600,000 Overhead cost 8035000 4565000 No of units U 25,000 20000 Cost per unit O/U 321.4 228.25 ABC Standard Deluxe Total direct material costs 335,000 245,000 Total direct labor costs 830,000 430,000 Manufacturing overhead 8,035,000 4,565,000 Total product cost T 9,200,000 5,240,000 No. of units produced N 25,000 20,000 Unit product Cost T/N 368.00 262.00