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		Costs	Activity Drivers
Receiving	$	1,652,400	Direct material cost
Manufacturing		18,547,000	Machine-hours
Machine setup		1,122,000	Number of setups
Shipping	$	3,485,000	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 operations:

   

			Products
		Standard			Deluxe
Total direct material costs	$	952,000		$	425,000
Total direct labor costs	$	2,074,000		$	765,000
Total machine-hours		748,000			255,000
Total number of setups		340			595
Total pounds of material		40,800			25,500
Total direct labor-hours		40,800			10,200
Number of units produced and shipped		68,000			17,000

  

The intern decides to look more closely at the manufacturing activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of on-going manufacturing while engineering includes those activities dealing with engineering changes, design modifications, and so on.

  

      The costs attributed to production are $11,534,500 and the costs attributed to engineering are $7,012,500. After discussion with plant engineers, the intern decides that the best cost driver for engineering is setups, because most of the work arises from changes in the way the product is run.

  

Required:

What unit product costs will be reported for the two products if the revised ABC system is used? (Round your intermediate computations and final answers to two decimal places.)

Reiceiving of materials

manufacturing per machine hour

engineering per set up

shipping per unit

	standart	deluxe
direct cost
overhead
receiving
manufacturing
engineering
machine set up
shipping
total cost
number of units
unit cost

  

Answer 1

Cost Pool	Cost (A)	Activity Driver	(B)	(A/B)
Receiving	1652400	DM cost	1377000	1.2
Manufacturing	11534500	Machine Hrs	1003000	11.5
Engineering	7012500	Setup	935	7500
Machine Setup	1122000	Setup	935	1200
Shiping	3485000	Unit ship	85000	41

	Standard	Deluxe
Direct Cost:-
DM	952000	425000
DL	2074000	765000
O/H:-
Receiving	(952000*1.2) = 1142400	(425000*1.2) = 510000
Manufacturing	(748000*11.5) = 8602000	(255000*11.5) = 2932500
Engineering	(340*7500) = 2550000	(595*7500) = 4462500
M/c Setup	(340*1200) = 408000	(595*1200) = 714000
Shipping	(68000*41) = 2788000	(17000*41) = 697000
Total cost	18516400	10506000
No of units	68000	17000
Unit cost	272.3	618