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Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered

Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information.

The controller decided that a good summer project for the intern would be to develop,in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were:

Cost Pools

Costs

Activity Drivers

Receiving

$

369,600

Direct material cost

Manufacturing

3,136,000

Machine-hours

Machine setup

490,000

Number of setups

Shipping

$

651,000

Units shipped

In this particular area, Cain produces two of its many products: Standard and Deluxe.The following are data for production for the latest full year of operations:

Products

Standard

Deluxe

Total direct material costs

$

126,000

$

182,000

Total direct labor costs

$

392,000

$

322,000

Total machine-hours

84,000

112,000

Total number of setups

56

140

Total pounds of material

8,400

9,100

Total direct labor-hours

4,200

4,200

Number of units produced and shipped

14,000

7,000

The intern decides to look more closely at the manufacturing activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of on-going manufacturing while engineering includes those activities dealing with engineering changes, design modifications, and so on.

The costs attributed to production are $1,764,000 and the costs attributed to engineering are $1,372,000. After discussion with plant engineers, the intern decides that the best cost driver for engineering is setups, because most of the work arises from changes in the way the product is run.

Required:

What unit product costs will be reported for the two products if the revised ABC system is used?

Receiving

of material dollars

Manufacturing

per machine-hour

Engineering

per setup

Machine setup

per setup

Shipping

per unit

Standard

Deluxe

Direct Costs

Overhead:

Receiving

Manufacturing

Engineering

Machine setup

Shipping

Total costs

$0.00

$0.00

Number of units

Unit cost

0

0

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