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

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Accounting

Montana Company manufactures three products in its plant: X, Y,and Z.

Unit costs and machine hour usage for the three productsare:

X

Y

Z

Direct materials

$38

$32

$44

Direct labor

$17

$11

$15

Machine hours

3

2

4

Budgeted production (units)

25,000

33,000

14,000

  1. Assume that Montana uses a traditional method of overheadallocation, based on direct labor cost. Budgeted overhead for theperiod is $4,091,800. Compute the unit cost of production to thenearest cent for products X,Y, and Z.
  2. Now assume that Montana uses an ABC system with three costdrivers: machine hours, 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 the unit cost of production for products X, Y, and Zusing the ABC system.

  1. Identify several possible advantages or disadvantages toMontana of using the ABC method. (Limit 200 words).

Answer & Explanation Solved by verified expert
4.5 Ratings (602 Votes)
Part CUsing ABC system following are the advantagesCost perunit for    See Answer
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