Cost distortions Sweditrak Corporation manufactures two models of its exer- LO 1, 3, 4 cise equipment: regular (REG) and deluxe (DLX). Its plant has two production departments, fabrication (FAB) and assembly (ASM), and two service depart¬ ments, maintenance (MNT) and quality control (QLC). The parts for each model are manufactured in the fabrication department and put together in the assem¬ bly department. The maintenance department supports both production depart¬ ments, and QLC performs all inspections for both production departments. Each unit of both products needs one inspection in each production department.

Each inspection takes 30 and 60 minutes for REG and DLX models, respectively.

The two production departments have set the following standards for direct ma¬ terial cost, direct labor cost, and machine hours for each unit of product.

The present cost accounting system assigns support costs in MNT to the production departments on the basis of machine hours and assigns QLC costs to the two production departments on the basis of the number of inspections.
The accumulated costs in FAB and ASM are applied to products based on di¬ rect labor hours.
The company is considering implementing an activity-based costing sys¬ tem using machine hours as the cost driver for MNT cost and inspection hours as the cost driver for QLC cost.
REQUIRED

(a) Using the present cost accounting system, determine the product costs per unit for each product for the two weeks.

(b) Using the proposed ABC system, determine the unit product costs for each product for the two weeks.

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FABRICATION ASSEMBLY Item REG DLX REG DLX Direct materials cost $40.00 $80.00 $10.00 $20.00 Direct labor cost 20.00 40.00 20.00 30.00 2.0 3.0 1.0 2.0 Machine hours The average wage rate for direct labor is $10 per hour. The following table gives the production volume and support costs for the past two weeks: PRODUCTION SUPPORT VOLUME COSTS Week REG DLX MNT QLC 45 450 430 $35,000 $6,310 46 450 450 $35,400 $6,350