Integrative Case 9-72 (Algo) Cost Allocation and Environmental Processes-Ethical Issues (LO 9-1, 3, 5, 6) California Circuits Company (3C) manufactures a variety of components. Its Valley plant specializes in two electronic components used in circuit boards. These components serve the same function and perform equally well. The difference in the two products is the raw material. The XL-D chip is the older of the two components and is made with a metal that requires a wash prior to assembly. Originally, the plant released the wastewater directly into a local river. Several years ago, the company was ordered to treat the wastewater before its release, and it installed relatively expensive equipment. While the equipment is fully depreciated, annual operating expenses of $258,000 are still incurred for wastewater treatment. Two years ago, company scientists developed an alloy with all of the properties of the raw materials used in XL-D that generates no wastewater. Some prototype components using the new material were produced and tested and found to be indistinguishable from the old components in every way relating to their fitness for use. The only difference is that the new alloy is more expensive than the old raw material. The company has been test-marketing the newer version of the component, referred to as XL-C, and is currently trying to decide its fate. Manufacturing of both components begins in the Production Department and is completed in the Assembly Department. No other products are produced in the plant. The following information relates to the two components: Units produced Raw material costs per unit Direct labor-hours per unit-Production Direct labor-hours per unit-Assembly Direct labor rate per hour-all labor Machine-hours per unit-Production Machine-hours per unit-Assembly Testing hours per unit (all in production) Shipping weight per unit (pounds) Wastewater generated per unit (gallons) Annual overhead costs for the two departments follow: Supervision Material handling Testing Wastewater treatment Depreciation on equipment Shipping Total Production Department $ 108,000 97,000 158,000 258,000 408,000 7,800 $ 1,036,800 XL-D 100,000 XL-C 25,000 $ 12.80 $ 14.80 0.1 0.1 0.4 0.4 $ 24.00 $ 24.00 1.6 1.6 0.4 0.4 3.0 3.0 1.0 1.6 10.0 0.0 Assembly Department $ 248,000 44,000 0 0 108,000 128,000 $ 528,000