Cain Components manufactures and distributes various plumbingproducts used in homes and other buildings. Over time, theproduction staff has noticed that products they considered easy tomake were difficult to sell at margins considered reasonable, whileproducts that seemed to take a lot of staff time were selling welldespite recent price increases. A summer intern has suggested thatthe cost system might be providing misleading information.
The controller decided that a good summer project for the internwould be to develop, in one self-contained area of the plant, analternative cost system with which to compare the current system.The intern identified the following cost pools and, afterdiscussion with some plant personnel, appropriate cost drivers foreach pool. There were:
| Cost Pools | | Costs | Activity Drivers |
| Receiving | $ | 600,000 | Direct material cost |
| Manufacturing | | 5,500,000 | Machine-hours |
| Machine setup | | 900,000 | Production runs |
| Shipping | | 1,000,000 | Units shipped |
|
In this particular area, Cain produces two of its many products:Standard and Deluxe. The following are data for production for thelatest full year of operations.
| Products |
| Standard | Deluxe |
| Total direct material costs | $ | 205,000 | | $ | 195,000 | |
| Total direct labor costs | $ | 650,000 | | $ | 330,000 | |
| Total machine-hours | | 134,000 | | | 116,000 | |
| Total number of setups | | 115 | | | 85 | |
| Total pounds of material | | 14,000 | | | 13,000 | |
| Total direct labor-hours | | 6,400 | | | 4,150 | |
| Number of units produced and shipped | | 12,000 | | | 13,000 | |
|
Required:
a. The current cost accounting system chargesoverhead to products based on machine-hours. What unit productcosts will be reported for the two products if the current costsystem continues to be used?
Direct Costs: Standard? Deluxe?
Overhead: Standard? Deluxe?
Number of Units: Standard? Deluxe?
b. The intern suggests an ABC system using thecost drivers identified above. What unit product costs will bereported for the two products if the ABC system is used?
Direct Costs: Standard? Deluxe?
Receiving: Standard? Deluxe?
Manufacturing: Standard? Deluxe?
Machine Set Up: Standard? Deluxe?
Shipping: Standard? Deluxe?
Number of Units: Standard? Deluxe?
