Question

Cain Components manufactures and distributes vanious 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 altermative 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 $ 540,000 6,400,000 1,260,000 Activity Drivers Direct material cost Machine-hours Number of set-ups Units shipped S 1,400,000 In this partioular 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 $270,000 $700,000 200.000 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 Deluxe $180.000 $300.000 120.000 120 9.500 3,125 15,000 90 19,000 5,000 20,000 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.) Standard Deluxe Direct costs Overhead Total costs 0 S 0 Number of units Unit cost 0

Answer 1

	Overhead
Receiving	540000
Manufacturing	6400000
Machine setup	1260000
Shipping	1400000
Total overhead cost	9600000

	Standard	Deluxe	Total
Total direct materials costs	270000	180000	450000
Total machine hours	200000	120000	320000
Total number of setups	90	120	210
Number of units produced and shipped	20000	15000	35000

Required 1 :
	Standard	Deluxe
Direct costs [ Total direct materials + Total direct labor ]	970000	480000
Overhead	6000000 [ 9600000 * 200000 / 320000 ]	3600000 [ 9600000 * 120000 / 320000 ]
Total costs	6970000	4080000
Number of units	20000	15000
Unit cost	348.50	272.00

Required 2 :
Direct costs [ Total direct materials + Total direct labor ]	970000	480000
Overhead
Receiving	324000 [ 540000 * 270000 / 450000 ]	216000 [ 540000 * 180000 / 450000 ]
Manufacturing	4000000 [ 6400000 * 200000 / 320000 ]	2400000 [ 6400000 * 120000 / 320000 ]
Machine setup	540000 [ 1260000 * 90 / 210 ]	720000 [ 1260000 * 120 / 210 ]
Shipping	800000 [ 1400000 * 20000 / 35000 ]	600000 [ 1400000 * 15000 / 35000 ]
Total costs	5664000	3936000
Number of units	20000	15000
Unit cost	283.20	262.40