Question

Required information 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 600,000 5,500,000 900,000 1,000,000 Activity Drivers Direct material cost Machine-hours Production runs 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. Total direct material costs Total direct labor costs Total machine-hours Total number of setups Total pounds of material Total direct labor-hours Number of units produced and shipped Products Standard Deluxe $150,000 $ 250,000 $ 650,000 $440,000 112,000 138,000 170 8,500 18,500 6,950 4,700 19,000 6,000 30

Answer 1

Total overhead cost = 600000 + 5500000 + 900000 + 1000000

8000000

	Standard	Deluxe	Total
Total direct materials costs	150000	250000	400000
Total machine hours	112000	138000	250000
Total number of setups	170	30	200
Number of units produced and shipped	19000	6000	25000

Required 1 :
	Standard	Deluxe
Direct costs [ Total direct materials + Total direct labor ]	800000	690000
Overhead	3584000 [ 8000000*112000/250000 ]	4416000 [ 8000000*138000/250000 ]
Total costs	4384000	5106000
Number of units	19000	6000
Unit cost	230.74	851.00

Required 2 :
	Standard	Deluxe
Direct costs [ Total direct materials + Total direct labor ]	800000	690000
Overhead
Receiving	225000 [ 600000*150000/400000 ]	375000 [ 600000*250000/400000 ]
Manufacturing	2464000 [ 5500000*112000/250000 ]	3036000 [ 5500000*138000/250000 ]
Machine setup	765000 [ 900000*170/200 ]	135000 [ 900000*30/200 ]
Shipping	760000 [ 1000000*19000/25000 ]	240000 [ 1000000*6000/25000 ]
Total costs	4214000	3786000
Number of units	19000	6000
Unit cost	221.79	631.00