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Accounting

Churchill Products is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. The companys cost accountant has identified three overhead cost pools along with appropriate cost drivers for each pool.

Cost Pools	Costs			Activity Drivers
Utilities	$	335,000		67,000	machine-hours
Scheduling and setup		290,000		580	setups
Material handling		775,000		1,550,000	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:

	Products
	Oval			Round			Square
Total direct costs (material and labor)	$	70,000		$	70,000		$	90,000
Total machine-hours		35,000			8,000			24,000
Total number of setups		80			300			200
Total pounds of material		460,000			290,000			800,000
Total direct labor-hours		3,500			1,500			5,000
Number of units produced		4,000			1,800			6,000

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? (Do not round intermediate calculations. Round "Per unit cost" answers to 2 decimal places.)

	Oval	Round	Square
Total Cost
Per Unit Cost

c. What are the cost driver rates for the three cost pools identified by the cost accountant? (Round your answers to 2 decimal places.)

Untilities		per machine hour
Scheduling and setup		per setup
Material handling		per pound

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? (Do not round intermediate calculations. Round "Per unit cost" answers to 2 decimal places.)

	Oval	Round	Square
Total Cost
Per Unit Cost

e. If management should decide to implement an activity-based costing system, what benefits should it expect? (Select the correct answer from the following options)

A. If management implemented an activity-based costing system it should be provided with a more thorough understanding of product costs. B. If management implemented an activity-based costing system it will increase the sales of the company.

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