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