Question

Churchill 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. Cost Pools Utilities Scheduling and setup Material handling Costs $265,000 290,000 800,000 Activity Drivers 53,000 machine-hours 580 setups 1,600,000 pounds of material 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. 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 Oval $ 70,000 25,000 80 490,000 3,500 4,200 Products Round $ 90,000 10,000 280 310,000 1,500 2,000 Square $ 80,000 18,000 220 800,000 5,000 6,500 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 A Required C Required D Required E 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? (Do not round intermediate calculations. Round "Per unit cost" answers to 2 decimal places.) Oval Round Square Total cost Per unit cost < Required A Required C >

Answer 1

A)

	OVAL	ROUND	SQUARE
TOTAL COST	544250	293250	757500
PER UNIT COST	129.58	146.63	116.54

TOTAL OH =265,000+290,000+800,000=1,355,000

OVERHEAD ABSORBTION RATE(OAR)= 1,355,000/(3500+1500+5000)=135.5

TOTAL COST OF OVAL= 70,000+ (OAR x 3500)=544250

(SIMILARY FOR OTHERS CAN BE FOUNDED)

COST/UNIT OF OVAL=544250/4200=129.58

(SIMILARY FOR OTHERS CAN BE FOUNDED)

C)

UTILITIES	5	PER MACHINE HOUR
SHEDULDING AND SETUP	500	PER SETUP
MATERIAL HANDING	.5	PER POUND

UTILITIES =265000/53000=5

  (SIMILARY FOR OTHERS CAN BE FOUNDED)

D)

	OVAL	ROUND	SQUARE
TOTAL COST	480,000	435,000	680,000
PER UNIT COST	114.29	217.5	104.62

TOTAL COST FOR OVAL = 70000+(5x25000)+(500x80)+(.5x490000)=480,000

(SIMILARY FOR OTHERS CAN BE FOUNDED)

cost/unit of oval = 480,000/4200=114.29

(SIMILARY FOR OTHERS CAN BE FOUNDED)