CHAPTER 4 CASES 4-54 Multiple Allocation Bases The Liverpool Company produces three types of circuit boards: Alpha, Beta, and Gamma. The cost accounting system used by Liverpool until 2012 applied all costs except direct materials to the prod- ucts using direct-labor hours as the only cost driver. In 2012, the company undertook a cost study. The study determined that there were six main factors that incurred costs. A new system was designed with a separate cost pool for each of the six factors. The factors and the costs associated with each are as follows: 1. Direct-labor hours-direct-labor cost and related fringe benefits and payroll taxes 2. Machine hours-depreciation and repairs and maintenance costs 3. Pounds of materials-materials receiving, handling, and storage costs 4. Number of production setupslabor used to change machinery and computer configurations for a new production batch 5. Number of production orderscosts of production scheduling and order processing 6. Number of orders shipped-all packaging and shipping expenses The company is now preparing a budget for 2013. The budget includes the following predictions: Beta 800 Units to be produced Direct-materials cost Direct-labor hours Machine hours Pounds of materials Number of production setups Number of production orders Number of orders shipped Alpha 10,000 70/unit 4/unit 7/unit 3/unit 100 300 1,000 88/unit 18/unit 15/unit 4/unit 50 200 800 Gamma 5,000 45/unit 9/unit 7/unit 2/unit 50 70 2,000 172 PART 1 FOCUS ON DECISION MAKING The total budgeted cost for 2013 is 3,866,250, of which 995,400 was direct-materials cost, and the amount in each of the six cost pools defined previously is as follows: 4 Cost Pool* Cost 1 1,391,600 2 936,000 3 129,600 160,000 5 25,650 6 228,000 Total 2,870,850 * Identified by the cost driver used. 1. Prepare a budget that shows the total budgeted cost and the unit cost for each circuit board. Use the new system with six cost pools (plus a separate direct application of direct-materials cost). 2. Compute the budgeted total and unit costs of each circuit board if the old direct-labor-hour sys- tem had been used. 3. How would you judge whether the new system is better than the old one