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California Circuits Company (3C) manufoctures 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 moterial. The XL-D chip is the older of the fwo components and is made with a metal that requires a wash prior to assembly. Originalily the plant released the wastewater directly into a local tiver. Several yeats 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 alf 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-maketing the newer version of the component, referred to as XL-C, and is currently tying to decide its fote. Marufacturing 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: Annual overhead costs for the two departments follow: The company president believes that it's foolish to continue producing two essentially equivalent products. At the same time, the corporate image is somewhat tarnished because of a toxic dump found at another site (not the Valley plant). The president would tike to be able to point to the Valley plant as an example of company research and development (R\&D) working to provide an environmentally friendly product. The controller points out to the president that the company's financial position is shaky, and it cannot afford to make products in any way other than the most cost-efficient one. Required: a. 3 C's current cost accounting system charges overhead to products based on direct labor cost using a single plantwide rate. What product costs will it report for the two products if the current allocation system is used? b. The controller recently completed an executive education course describing the two-stage allocation procedure. Assume that the first stage allocates costs to departments and the second stage allocates costs to products. The controller believes that the costs will be more accurate if machine-hours are used to allocate Production Department costs and labor-hours are used to allocate Assembly Deparment costs. What product costs wal be reported for the fwo products if the two-stage allocation process is used? d. The president argues that an activity based costing system would provide even better costs. The company decides to compute product costs assuming an ABC system is implemented only in the Production Department, Overhead in Assembly will continue to be allocated based on direct labor cost. The cost drivers selected for the activity-based costing system are as follows. What product costs would be reported if this ABC system were implemented? Assume that the production mix and costs would remain as originally planned. What product costs would be reported if this ABC system were implemented? Assume that the production mix and costs would remain as originally planned. Note: Round your intermediate calculations and final answer to 2 decimal places
