Question

Chapter 9 Homework 2 Churchil Products is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. The company's cost accountant has identified three overhead cost pools along with appropriate cost drivers for each pool. Activity Drivers 90,000 machine-hours 900 setups 2,400,000 pounds of material Costs $1,350,eee 1,350,000 3,600,000 Cost Pools Utilities Scheduling and setup Material handling 10 peints The company manufactures three models of water basins (Oval, Round, and Square), The plans for production for the next year and the budgeted direct costs and activity by product line are as follows. eBook Products Square $ 240,000 30,000 330 Round $240,000 15,600 450 450,000 2,70e 3,e00 Oval $240,000 45,000 120 750,eee 4, 800 6,000 Total direct costs (material and labor) Total machine-hours Total number of setups Total pounds of material Total direct labor-hours Number of units produced Print 1,200,e00 7,500 9,000 References Required: a. The current cost accounting system charges overhead to products based on direct labor-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? c. What are the cost driver rates for the three cost pools identified by the cost accountant? d. What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's classification of cost pools is used? e. If management should decide to implement an activity-based costing system, what benefits should it expect? Complete this question by entering your answers in the tabs below. Required E Required C Required D Required A The current cost accounting system charges overhead to products based on direct labor-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? (Round "Per unit cost" answers to 2 decimal places.) Square Round Oval Total cost Per unit cost Score answer 2 of 7 ( Prev

Answer 1

1 Requirement (a) Requirement (D) Under current cost where overheads ar based on Direct laour cost, When ABC system is incorporated, overheads shall be allocated on the basis of activity drivers allotted to them 2 3 Total overheads will be apportioned on the basis of direct labour hours Therefore 4 Total overheads 13500000+1350000+3600000= 6300000 Oval Round Square Oval 240000 5 Round Square Direct Cost 240000 240000 Overheads: 6 Direct Cost 240000 240000 240000 7 Overheads Utilities 2016000 1134000 3150000 (machine hr*rate Sch. And setup 8 Total cost 2256000 1374000 3390000 675000 225000 450000 9 units 6000 3000 9000 |(setups rate) Mat. Handling 376.6666667 10 unit cost 376 458 180000 675000 495000 11 (totalcost/units) (mat. rate) 12. 1125000 675000 1800000 13 Requirement 14 Cost driver rates for the cost pools shall be- cost pool/total activity driver 15 Cost pool Total cost 2220000 1815000 2985000 6000 units 3000 9000 Costs Activity driver Rate per unit cost 370 605 331.6667 16 Utilities 90000 Machine hr 15 1350000 900 setups 17 Scheduling&setup 1350000 (The rate has been taken from requirement calculations 1500 18 Material handling 2400000 pounds of material 3600000 1.5 19