Part C: Calculating Costs

Serenity Now Industries manufactures custom fiberglass hulls for luxury yachts and pleasure boats. The current cost accounting system uses machine hours to allocate manufacturing overhead to each job. Serenity estimates that in the coming year it will incur $600,000 in manufacturing overhead costs and use 8,000 machine hours.

Depending on the specifications requested by the customer, the hull may use hazardous chemicals that incur greater disposal costs. Serenity's traditional accounting system includes the cost of hazardous waste disposal in with total manufacturing overhead. Serenity is planning to implement an activity-based costing system to more accurately assign hazardous waste disposal costs to each job.

Expected usage and costs for manufacturing overhead are as follows:

Cost Pool Description Cost Pool Cost Drive Cost Driver Usage Cost Pool Rate

Machine Maintenance Costs 200,000 Number of Machine Hrs 8,000 $25.00

Engineering Change Orders 100,000 Number of Change Orders 1,250 $80.00

Hazardous Waste Disposal 300,000 Gallons of Hazardous Waste 800 $375.00

$600,000 Generated

During the year, Yacht #633 was started and completed:

DM cost per lb. $55

Lbs. of DM used on job 170

DL cost per hr. $20.00

DLH used 50

Requirements:

a.Calculate the cost of Yacht #633 using the Serenity's current method of allocating manufacturing overhead.

b.Calculate the cost of Yacht #633 using the proposed activity-based costing system. How is this information useful to an environmental management accounting (EMA) system?