Question

55. Activity Based Costing. Cost Flow Diagram, and Predetermined Overhead Rates LO 56 Ulica Manufacturing (UM) was recently acquired by Mega Machines, Inc. (MM), and organized as a separate division within the company. Most manufacturing plants at MM use an ABC system, but UM has always used a traditional product costing system. Bob Mier, the plant controller st UM, has decided to experiment with ABC and has asked you to help develop a simple ABC system that would help him decide if it was useful. The controller's staff has identified costs for the first month in the four overhead cost pools along with appropriate cost drivers for each pool: Cost Pools Incoming Inspection ...... Production... . Machine sotup. Shipping ...... Costs $ 170.000 1,500,000 700,000 480,000 Activity Drivers Direct material cost Machine-hours Setups Units shipped The company manufactures two basic products with model numbers 308 and 510. The following are date for production for the first month as part of MM: Total direct material costs. Total direct labor costs Total machine-hours.. Total number of setups. Total pounds of material Total direct labor-hours Number of units produced and shipped...... Products 308 510 $ 50,000 $ 18,000 S166,000 S198,000 60,000 90,000 50 90 18,000 9,000 6,000 9,000 30,000 18,000 Required . The current cost accounting system charges overhead to products based on machine-hours What unit product costs will be reported for the two products if the current cost system continues to be used? A consulting firm has recommended using an activity-based costing system, with the activities based on the cost pools identified by the cost accountant. What are the cost driver rates for the four cost pools identified by the cost accountant? What unit product costs will be reported for the two products if the ABC system suggested by the cost ooountant's classification of cost pools is used? dif management should decide to implement en activity-based costing system what benefits should it expect?

Answer 1

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Page4 510 total cofe 308 COntwoo activite adateactivities Rsao 8.000 COYE allocate NO TOtal ncomingooo JnApection 50000 63,000 HS000 SO0O0 60c0o Penoductin S0ocOo 40 machin e7oocco setup 50 90 ифоб RO.COO 300 c00gcco 30c00 Shipping Hso,000 975,c00 1,395,o00 $50000 68.c00 irect materia co 8000 50,000 364000 1000 machin e hours a,8 S0,000 515,000 75,CO0 Over TOtas head 3,821000 ,91000 ,491.00 TOtal co 100 50 unit coe

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