Churchill Products is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. The company’s cost accountant has identified three overhead cost pools along with appropriate cost drivers for each pool. Cost Pools Costs Activity Drivers Utilities $ 310,000 62,000 machine-hours Scheduling and setup $ 290,000 580 setups Material handling $ 795,000 1,590,000 pounds of material The company manufactures three models of water basins (Oval, Round, and Square). The plans for production for the next year and the budgeted direct costs and activity by product line are as follows. Products Oval Round Square Total direct costs (material and labor) $80,000 $80,000 $70,000 Total machine-hours 30,000 10,000 22,000 Total number of setups 60 300 220 Total pounds of material 490,000 290,000 810,000 Total direct labor-hours 3,500 2,000 4,500 Number of units produced 4,400 2,000 6,000 Required: (Do not rund intermediate calculations. Round "Per unit cost" answers to 2 decimal places.) a. The current cost accounting system charges overhead to products based on direct labor-hours. What unit product costs will be reported for the three products if the current cost system continues to be used? Oval Round Square Total Cost Per unit cost b. What are the cost driver rates for the three cost pools identified by the cost accountant? Utilities per machine-hours Scheduling and setup per steup Material Handling per pound c. What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's classification of cost pools is used? Oval Round Square Total Cost Per unit cost

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 19E: Refer to the data in Exercise 7.18. When the capacity of the HR Department was originally...

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Churchill Products is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. The company’s cost accountant has identified three overhead cost pools along with appropriate cost drivers for each pool.

Cost Pools	Costs	Activity Drivers
Utilities	$ 310,000	62,000	machine-hours
Scheduling and setup	$ 290,000	580	setups
Material handling	$ 795,000	1,590,000	pounds of material

The company manufactures three models of water basins (Oval, Round, and Square). The plans for production for the next year and the budgeted direct costs and activity by product line are as follows.

	Products
	Oval	Round	Square
Total direct costs (material and labor)	$80,000	$80,000	$70,000
Total machine-hours	30,000	10,000	22,000
Total number of setups	60	300	220
Total pounds of material	490,000	290,000	810,000
Total direct labor-hours	3,500	2,000	4,500
Number of units produced	4,400	2,000	6,000

Required: (Do not rund intermediate calculations. Round "Per unit cost" answers to 2 decimal places.)

a. The current cost accounting system charges overhead to products based on direct labor-hours. What unit product costs will be reported for the three products if the current cost system continues to be used?

	Oval	Round	Square
Total Cost
Per unit cost

b. What are the cost driver rates for the three cost pools identified by the cost accountant?

Utilities		per machine-hours
Scheduling and setup		per steup
Material Handling		per pound

c. What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's classification of cost pools is used?

	Oval	Round	Square
Total Cost
Per unit cost

d. If management should decide to implement an activity-based costing system, what benefits should it expect?

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