DEECT LABOR HOURS (QUHO R361 R572 DEPARTMENT Casting (P1) Machining (P2) Total 60.000 72,000 132,000 20,000 48,000 68,000 TOTAL 80,000 120.000 200,000 DIRECT LABOR COSTS $1,200,000 2,160,000 $3,360,000 R361 DEPARTMENT Casting (P1) Machining (P2) Total MACHINE HOURS (MH) R572 TOTAL 10,000 40,000 45,000 120.000 58,000 160,000 30,000 72,000 102,000 ITEM R361 R572 Sales Price per unit Sales and production units Number of orders Number of setups Materials cost per unit $19 500,000 1,000 2,000 $8 $20 400,000 1,000 4,000 $10 Now the plant has implemented an activity-based costing system. The following table presents the amounts from the old cost pools that are traced to each of the new activity cost pools: OLD COST Poots S2 S1 12 TOTAL ACTIVITY COST DRIVERS P1-DLH P2-DLH Setup hours P1-MH P2-MH Total $120,000 240,000 816,000 0 0 $1,176,000 SO 0 80,000 260.000 780,000 $1,120,000 P1 $120,000 0 240,000 120,000 $0 120,000 540,000 0 120,000 $780,000 $240,000 360,000 1,676,000 380,000 900,000 $3,556,000 $450,000 Setups for R572 are 50% more complex than those for R361; that is, each R572 setup takes 1.5 times as long as one R361 setup. Required a. Determine the product costs per unit using the old system. Show all intermediate steps for allocations, including departmental cost driver rates and a breakdown of product costs into each of their components. b. Determine the product costs per unit using the new system. c. Explain the intuitive reason that the product costs differ under the two accounting systems. d. What should Crimson Components do to improve the profitability of its Redwood City plant? Include marketing and product-related changes among your recommendations. e. Describe how experienced production and sales managers are likely to react to the new product costs. LO 1,3,4 4-43 Activity-based costing, service department allocations, activity-based management The Fishburn plant of Hibeem Electronics Corporation makes two types of wafers Chapter 4 Activity-Based Cost Systems 181 DEECT LABOR HOURS (QUHO R361 R572 DEPARTMENT Casting (P1) Machining (P2) Total 60.000 72,000 132,000 20,000 48,000 68,000 TOTAL 80,000 120.000 200,000 DIRECT LABOR COSTS $1,200,000 2,160,000 $3,360,000 R361 DEPARTMENT Casting (P1) Machining (P2) Total MACHINE HOURS (MH) R572 TOTAL 10,000 40,000 45,000 120.000 58,000 160,000 30,000 72,000 102,000 ITEM R361 R572 Sales Price per unit Sales and production units Number of orders Number of setups Materials cost per unit $19 500,000 1,000 2,000 $8 $20 400,000 1,000 4,000 $10 Now the plant has implemented an activity-based costing system. The following table presents the amounts from the old cost pools that are traced to each of the new activity cost pools: OLD COST Poots S2 S1 12 TOTAL ACTIVITY COST DRIVERS P1-DLH P2-DLH Setup hours P1-MH P2-MH Total $120,000 240,000 816,000 0 0 $1,176,000 SO 0 80,000 260.000 780,000 $1,120,000 P1 $120,000 0 240,000 120,000 $0 120,000 540,000 0 120,000 $780,000 $240,000 360,000 1,676,000 380,000 900,000 $3,556,000 $450,000 Setups for R572 are 50% more complex than those for R361; that is, each R572 setup takes 1.5 times as long as one R361 setup. Required a. Determine the product costs per unit using the old system. Show all intermediate steps for allocations, including departmental cost driver rates and a breakdown of product costs into each of their components. b. Determine the product costs per unit using the new system. c. Explain the intuitive reason that the product costs differ under the two accounting systems. d. What should Crimson Components do to improve the profitability of its Redwood City plant? Include marketing and product-related changes among your recommendations. e. Describe how experienced production and sales managers are likely to react to the new product costs. LO 1,3,4 4-43 Activity-based costing, service department allocations, activity-based management The Fishburn plant of Hibeem Electronics Corporation makes two types of wafers Chapter 4 Activity-Based Cost Systems 181