Montana Company manufactures three products in its plant: X, Y, and Z. Unit costs and machine hour usage...

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Accounting

Montana Company manufactures three products in its plant: X, Y, andZ.
Unit costsand machine hour usage for the three products are:
X Y Z
Direct materials $38 $32 $44
Direct labor $17 $11 $15
Machine hours 3 2 4
Budgetedproduction (units) 25,000 33,000 14,000
a) Assume thatMontana uses a traditional method of overhead allocation, based ondirect labor cost.
Budgetedoverhead for the period is $4,091,800.
Compute theunit cost of production to the nearest cent for products X,Y, andZ.
b) Now assumethat Montana uses an ABC system with three cost drivers: machinehours, setups, and number of parts.
Product Xrequires two setups per period, and requires five distinct parts.Product Y requires four setups, and eight parts. Product Z requiresten setups and fifteen parts.
Cost pools:
Setups 528,300
Machine hours 2,797,400
Parts 766,100
4,091,800
Compute theunit cost of production for products X, Y, and Z using the ABCsystem.
c) Identifyseveral possible advantages or disadvantages to Montana of usingthe ABC method. (Limit 200 words).

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4.1 Ratings (684 Votes)

A Estimated overhead costs 409180000 477 per direct labor Cost Estimated direct labor hours 85800000 Product DL Hours Plantwide Oh Rate Total Overhead Cost Units Produced Oh Cost per Unit X 42500000 477 202682401 2500000 8107 Y 36300000 477 173114615 3300000 5246 Z 7000000 477 See Answer

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Montana Company manufactures three products in its plant: X, Y, andZ.
Unit costsand machine hour usage for the three products are:
			X	Y	Z
	Direct materials		$38	$32	$44
	Direct labor		$17	$11	$15
	Machine hours		3	2	4

	Budgetedproduction (units)		25,000	33,000	14,000
a)	Assume thatMontana uses a traditional method of overhead allocation, based ondirect labor cost.
	Budgetedoverhead for the period is $4,091,800.
	Compute theunit cost of production to the nearest cent for products X,Y, andZ.
b)	Now assumethat Montana uses an ABC system with three cost drivers: machinehours, setups, and number of parts.
	Product Xrequires two setups per period, and requires five distinct parts.Product Y requires four setups, and eight parts. Product Z requiresten setups and fifteen parts.
	Cost pools:
	Setups	528,300
	Machine hours	2,797,400
	Parts	766,100
		4,091,800

	Compute theunit cost of production for products X, Y, and Z using the ABCsystem.
c)	Identifyseveral possible advantages or disadvantages to Montana of usingthe ABC method. (Limit 200 words).