Environmental costs, activity-based costing. Kaizen costing Evans Co. LO 5,6 makes two products, product X and product

Question:

Environmental costs, activity-based costing. Kaizen costing Evans Co. LO 5,6 makes two products, product X and product Y. Evans has produced product X for many years without generating any hazardous wastes. Recently, Evans de¬ veloped product Y, which is superior to product X in many respects. However, production of product Y generates a hazardous waste. Because of the haz¬ ardous wastes, Evans now must deal with hazardous waste disposal, govern¬ mental environmental reports and inspections, and safe handling procedures.

Evans Co. uses a plant-wide rate based on machine hours to assign manu¬ facturing support costs to its two products. Because of concerns about the ac¬ curacy of the product costing system, Kim Briggs, the controller, undertook an activity-based costing analysis of the manufacturing support costs. The result¬ ing cost information is summarized in the following table. image text in transcribed

REQUIRED

(a) Compute product costs for products X and Y using a plant-wide rate based on machine hours for manufacturing support costs.

(b) Compute product costs for products X and Y using the activity-based cost¬ ing figures provided in the table.

(c) Explain the reasons for the differences in cost for each product using the two cost systems. (You may wish to compute unit-level support, batch-level support, product-level support, and business-sustaining costs per unit.)

(d) Evans has been selling products X and Y at a price equal to 1.5 times the product cost computed using the plant-wide rate for manufacturing sup¬ port costs. Compute these prices and provide recommendations to Evans management concerning profit improvement through pricing changes and cost reduction through manufacturing improvements.LO 3

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