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Part 3: Activity-Based Costing Wayfarer Corporation is contemplating changing its cost system to an activity-based costing system and wants to know more about the effects
Part 3: Activity-Based Costing Wayfarer Corporation is contemplating changing its cost system to an activity-based costing system and wants to know more about the effects of doing so. The corporation's cost accountant has identified three overhead cost pools along with the cost drivers associated with each pool as follows: Cost Pools Utilities Delivery Assembly Costs $5,420,000 5,420,000 10.940.000 Activity Drivers 180,000 machine hours 10,000 deliveries 2,000,000 pounds of The corporation makes three models of kitchen sinks (Deluxe, Premium, and Standard) The plans for production for the next year and the direct costs that have been budgeted for activity by product are listed below Products Deluxe Total direct costs (material and labor) Total machine-hours Total deliveries Total pounds of material Total direct labor-hours Number of units $850,000 850,000 850,000 210,000 310 1,800,000 95,000 154,000 1,200,000 8,500 12,000 12,400 18,600 18,000 24,000 A. The current cost accounting system charges overhead to products on the basis of direct labor-hours. What unit product costs will be reported for the three products assuming the current cost system continues to be used? B. What are the cost driver rates associated with the three cost pools specified by the cost accountant? C. What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's categorization of cost pools is utilized
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