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Product Costing (20) The Wedding Rings Division of GEP Corporation produces two types of rings at its Central Plant: Plain and Engraved. The following data
Product Costing (20) The Wedding Rings Division of GEP Corporation produces two types of rings at its Central Plant: Plain and Engraved. The following data exist for production at the Central Plant: Ring Type Quantity Prime Machine Material (units) Costs* Hours Moves Setups Plain 1,000,000 $2,000,000 100.000 100,000 25 Engraved 150,000 $450,000 25.000 100,000 75 *Prime costs are direct labor and direct materials costs The division budgeted the following amounts for its indirect activities: Machine-Related Material Movement Machine Setup $500,000 $850,000 $650.000 The current cost system assigns all indirect costs based on machine hour consumption. A. Calculate the (single) pre-determined overhead rate (PDOR) for the Central Plant under the current cost system. B. Compute the reported unit cost of each product using the current cost system. That is, for the inventory of Plain and Engraved Rings in the warehouse, what does the system report as the cost for one ring of each type? Be sure to show your work clearly and explain any assumptions you make. C. The product manager for Plain Rings believes this existing system subsidizes (reduces) the reported cost of Engraved Rings at the expense of the reported cost of Plain Rings. Without performing any cost calculations, explain why the product manager for Plain Rings is correct. D. Compute the reported unit cost of each product using a multiple-allocation-base approach. Show your work clearly and explain any assumptions you make. E. Identify at least three (3) separate and distinct reasons why the reported unit costs you calculated in Part D might not be equal to economic costs
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