Reference no: EM132837503
Question - Carter Company manufactures two products, Deluxe and Regular, and uses a traditional two-stage cost allocation system. The first stage assigns all factory overhead costs to two production departments, A and B, based on machine hours. The second stage uses direct labor hours to allocate overhead to individual products.
For the current year, the firm budgeted $1,400,000 total factory overhead cost. The $1,400,000 was for the planned levels of machine and direct labor hours shown in the following table.
|
|
Production Department A
|
Production Department B
|
|
Machine hours
|
5,600
|
22,400
|
|
Direct labor hours
|
28,000
|
14,000
|
The following information relates to the firm's operations for the month of January:
|
|
Deluxe
|
Regular
|
|
Units produced and sold
|
280
|
1,120
|
|
Unit cost of direct materials
|
$140
|
$70.00
|
|
Hourly direct labor wage rate
|
$25
|
$28
|
|
Direct labor hours in Department A per unit
|
2
|
2
|
|
Direct labor hours in Department B per unit
|
1
|
1
|
Carter Company is considering implementing an activity-based costing system. Its management accountant has collected the following information for activity cost analysis for the current year:
|
Activity
|
Budgeted Overhead
|
Cost Driver
|
Budgeted Quantity
|
Driver Consumption
|
|
Deluxe
|
Regular
|
|
Material movement
|
$9,800
|
Number of production runs
|
403.00
|
21.00
|
28
|
|
Machine setups
|
560,000
|
Number of setups
|
700
|
35.00
|
70.00
|
|
Inspections
|
823,200
|
Number of units
|
27,440
|
280
|
1,120
|
|
Shipment
|
7,000
|
Number of shipments
|
350.00
|
70.00
|
140
|
|
|
$1,400,000
|
|
|
|
|
Required -
1. Calculate the unit cost for each of the two products under the existing volume-based costing system.
2. Calculate the overhead per unit of the cost driver under the proposed ABC system.
3. Calculate the unit cost for each of the two products if the proposed ABC system is adopted.