tica Manufacturing (UM) was recently acquired by MegaMachines,Inc. (MM), and organized as a separate division within the company.Most manufacturing plants at MM use an ABC system, but UM hasalways used a traditional product costing system. Bob Miller, theplant controller at UM, has decided to experiment with ABC and hasasked you to help develop a simple ABC system that would help himdecide if it was useful. The controller’s staff has identifiedcosts for the first month in the four overhead cost pools alongwith appropriate cost drivers for each pool:
| Cost Pools | Costs | Activity Drivers | |
| Incoming inspection | $ | 154,000 | | Direct material cost | |
| Production | | 1,430,000 | | Machine-hours | |
| Machine setup | | 792,000 | | Setups | |
| Shipping | | 484,000 | | Units shipped | |
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The company manufactures two basic products with model numbers 308and 510. The following are data for production for the first monthas part of MM:
| Products |
| | 308 | | 510 |
| Total direct material costs | $ | 54,000 | | $ | 23,000 | |
| Total direct labor costs | $ | 164,000 | | $ | 194,000 | |
| Total machine-hours | | 68,000 | | | 132,000 | |
| Total number of setups | | 58 | | | 86 | |
| Total pounds of material | | 17,600 | | | 8,600 | |
| Total direct labor-hours | | 5,600 | | | 8,600 | |
| Number of units produced and shipped | | 24,000 | | | 20,000 | |
|
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? (Round intermediatecalculations and "Per unit cost" answers to 2 decimalplaces.)
|
| | 308 | 510 | | Total cost | | | | Per unit cost | | |
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b. A consulting firm has recommended using anactivity-based costing system, with the activities based on thecost pools identified by the cost accountant. What are the costdriver rates for the four cost pools identified by the costaccountant? (Round your answers to 2 decimalplaces.)
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| | | | | Incoming inspection: | | % of material dollars | | Production: | | per machine-hour | | Machine setup: | | per setup | | Shipping: | | per unit |
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c. What unit product costs will be reported forthe two products if the ABC system suggested by the costaccountant’s classification of cost pools is used? (Roundintermediate calculations and final answers to 2 decimalplaces.)
| 308 | 510 | | Total cost | | | | Per unit cost | | |
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d. If management should decide to implement anactivity-based costing system, what benefits should it expect?
| If management implemented an activity-based costing system itshould be provided with a more thorough understanding of productcosts. |
| If management implemented an activity-based costing system itwill increase the sales of the company. |
