COSTING CONUNDRUM-A Hypothetical Scenario Apart from Twinkies, Hostess Brand Inc. also produces another baked goods such as Cupcakes, Donettes, Ding Dongs, and Zingers in addition to Danishes, Honey Buns and Coffee Cakes. For years, the company's cost accounting system has not been effective and because of this, the Vice President of Production, Mr. Rick Martin stormed out of the weekly Tuesday meeting of the company's senior management team. In the meeting, the CEO, Mr. Eric Rhodes announced to discuss the changes in costing of four fast selling products, which include Twinkies, Donettes, Ding Dongs, and Zingers for next year. For the company's internal discussion, these products are referred to as T, D, DD and Z. The company uses normal absorption costing to account for its manufacturing costs. The company's costing system charges manufacturing overhead cost to these products using direct labor costs as an allocation base. The company's 2021 budget include the following amounts: Direct material costs of $900,000 Direct labor costs of $840,000 Manufacturing overhead of $1,680,000 Table 1 presents the company's 2021 budgeted cost data: Table 1- Budgeted Cost Data T Direct Material Cost Direct Labor Cost Units produced D DD $90,000 $90,000 $180,000 84,000 84,000 168,000 342,000 342,000 684,000 Z Total $540,000 $900,000 504,000 840,000 684,000 2,052,000 The company's 2021 proforma Income Statement is presented in Table 2. Table 2- Proforma of Statement of Profit or Loss for 2021 D DD Z Total Sales Cost of Goods Sold $410,000 $376,200 $957.600 $2,052,000 $3.796,200 342,000 342,000 684,000 2,052,000 3,420,000 $68,400 $34,200 $273,600 $376,200 320,000 $56,200 Gross Profit Operating Expenses Profit Before Taxes No inventory as at December 31, 2020 and the company plans not to have any inventory of any products on December 31, 2021. Continued...