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Livonia Ltd. manufactures and sells two products: (1) X643, and (2) Y728. Product X643 uses 30 per unit in raw material and Product Y728 uses
Livonia Ltd. manufactures and sells two products: (1) X643, and (2) Y728. Product X643 uses 30 per unit in raw material and Product Y728 uses 60 per unit in raw material. Product X643 uses three direct labor hours and four machine hours per unit and product Y728 uses six direct labor hours and six machine hours per unit. All production workers are paid 15 / hour. Below are the per-unit cost, expected volumes and number of orders for each product line. X643Y728 Direct Material Cost 30/unit 60/unit Direct Labor Hours3 hours/unit6 hours/unit Wage Rate15/hour 15/hour Machine Hours (MH)4 MH/unit6 MH/unit Volumes50,00025,000 Orders To Serve500 orders2500 orders Indirect costs consist of manufacturing costs of 900,000 and support costs of 900,000. To determine product line profitability, the current costing system pools all indirect costs (i.e., manufacturing plus support) in one single pool and allocates these costs based on direct labor hours. However, the company is considering adopting a two-stage costing system which would treat the two categories of indirect costs separately. Specifically, the total manufacturing costs (which include material handling ( 200,000) and processing ( 700,000)) will be allocated using the sum of direct material and direct labor costs, while the support costs (which include packaging and shipping ( 325,000) and order handling ( 575,000)) will be allocated based on the number of orders received. Required: a. Determine the per unit cost of each product under the current costing system. b. Determine the per unit cost of each product under the proposed two-stage system.
Livonia Ltd. manufactures and sells two products: (1) X643, and (2) Y728. Product X643 uses 30 per unit in raw material and Product Y728 uses 60 per unit in raw material. Product X643 uses three direct labor hours and four machine hours per unit and product Y728 uses six direct labor hours and six machine hours per unit. All production workers are paid 15 / hour. Below are the per-unit cost, expected volumes and number of orders for each product line.
X643Y728
Direct Material Cost 30/unit 60/unit
Direct Labor Hours3 hours/unit6 hours/unit
Wage Rate15/hour 15/hour
Machine Hours (MH)4 MH/unit6 MH/unit
Volumes50,00025,000
Orders To Serve500 orders2500 orders
Indirect costs consist of manufacturing costs of 900,000 and support costs of 900,000.
To determine product line profitability, the current costing system pools all indirect costs (i.e., manufacturing plus support) in one single pool and allocates these costs based on direct labor hours. However, the company is considering adopting a two-stage costing system which would treat the two categories of indirect costs separately. Specifically, the total manufacturing costs (which include material handling ( 200,000) and processing ( 700,000)) will be allocated using the sum of direct material and direct labor costs, while the support costs (which include packaging and shipping ( 325,000) and order handling ( 575,000)) will be allocated based on the number of orders received.
Required:
a. Determine the per unit cost of each product under the current costing system.
b. Determine the per unit cost of each product under the proposed two-stage system.
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