Utica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM), and organized as a separate division...

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Utica 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 has always used a traditional product costing system. Bob Miller, the plant controller at 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 Costs Incoming inspection Production $ 237,000 Machine setup Shipping 1,350,000 720,000 468,000 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 data for production for the first month as part of MM. Products Total direct material costs Total direct labor costs Total machine-hours 308 $ 45,000 $175,000 510 $ 34,000 $205,000 56,000 94,000 Total number of setups 65 95 Total pounds of material 18,500 9,500 Total direct labor-hours Number of units produced and shipped 6,500 32,000 9,500 20,000 Required: a. 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? b. 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? c. What unit product costs will be reported for the two products if the ABC system suggested by the cost accountant's classification of cost pools is used? d. If management should decide to implement an activity-based costing system, what benefits should it expect? Utica 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 has always used a traditional product costing system. Bob Miller, the plant controller at 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 Costs Incoming inspection Production $ 237,000 Machine setup Shipping 1,350,000 720,000 468,000 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 data for production for the first month as part of MM. Products Total direct material costs Total direct labor costs Total machine-hours 308 $ 45,000 $175,000 510 $ 34,000 $205,000 56,000 94,000 Total number of setups 65 95 Total pounds of material 18,500 9,500 Total direct labor-hours Number of units produced and shipped 6,500 32,000 9,500 20,000 Required: a. 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? b. 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? c. What unit product costs will be reported for the two products if the ABC system suggested by the cost accountant's classification of cost pools is used? d. If management should decide to implement an activity-based costing system, what benefits should it expect?

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1 To calculate the unit product costs for the two products using the current cost system we need to ... View the full answer