Question

Required information

Upriver Parts manufactures two products, V-1 and V-2, at its River Plant. Selected data for an average month for the two products follow.

	V-1			V-2
Units produced		10,000			1,000
Direct materials cost per unit	$	2		$	4
Machine hours per unit		1			2
Production runs per month		80			40

Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow.

Machine depreciation	$	57,000
Setup labor		26,400
Material handling		16,080
Total	$	99,480

Required:

a. Compute the unit costs for the two products V-1 and V-2 using the current costing system at Upriver (using machine hours as the allocation basis). (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. Compute the unit costs for the two products V-1 and V-2 using the proposed ABC system at Upriver. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Unit Cost V-1 V-2 a. Using current costing system b. Using proposed ABC system

Answer 1

Current System
	V-1	V-2
Direct material	2	4
Overhead	8.29	16.58
Unit cost	10.29	20.58
ABC System
	V-1	V-2
Direct material	2	4
Overheads
Machine Depreciation	47500	9500
Setup Labor	17600	8800
Material Handling	13400	2680
Total overheads	78500	20980
Overhead per unit	7.85	20.98
Unit cost	9.85	24.98

B c 1 Current System 2 V-1 V-2 4 =99480*1/12000 =SUM(B3:34) =99480*2/12000 =SUM(C3:04) V-1 12 V-2 4 3 Direct material 4 Overhead 5 Unit cost 6 7 ABC System 8 9 Direct material 10 Overheads 11 Machine Depreciation 12 Setup Labor 13 Material Handling 14 Total overheads 15 Overhead per unit 16 Unit cost 17 =57000*10000/12000 =57000*2000/12000 =26400*80/120 =26400*40/120 =16080*20000/24000 =16080*4000/24000 | =SUM(B11:B13) =SUM(C11:C13) =B14/10000 =C14/1000 =B9+B15 =C9+C15