Utica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM), and organized as a separate division within the company. Most manufacturing plants at MM use an ABC system, but UM has always used a traditional product costing system. Bob Miller, the plant controller at UM, has decided to experiment with ABC and has asked you to help developa simple ABC system that would help him decide if it was useful. The controller's staff has identified costs for the first month in the four overhead cost pools along with appropriate cost drivers each pool Cost Pools Incoming inspection Production Costs Activity Drivers Direct material cost 154.000 Machine-hours Setups shipped 1,600,000 900,000 450,000 Machine setup Shipping The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first month as part of MM: Products 308 510 $ 32,000 Total direct material costs Total direct labor costs Total machine-hours Total number of setups Total pounds of material $173,000 50,000 $203.000 110,000 93 57 18,300 6,300 30,000 9,300 9,300 20,000 Total direct labor-hours Number of units produced and shipped Required: a. The current cost accounting system charges overhead to products based on machine-hours. What unit product costs will be reported for the two products if the current cost system continues to be used? (Round intermediate calculations and "Per unit cost" answers to 2 decimal places.) 510 308 Total cost Per unit cost b. A consulting firm has recommended using an activity-based costing system, with the activities based on the cost pools identified by the cost accountant. What are the cost driver rates for the four cost pools identified by the cost accountant? (Round your answers to 2 decimal places.) Incoming inspection material dollars per machine-hour Production Machine setup per setup per unit Shipping c. What unit product costs will calculations and final answers to 2 decimal places.) reported for the two products if the ABC system suggested by the cost accountant's classification of cost pools is used? (Round intermediate 308 510 Total cost Per unit cost d. If management should decide to implement an activity-based costing system, what benefits should it expect? O If management implemented an activity-based costing system it should be provided with a more thorough understanding of product costs. O If management implemented an activity-based costing system it will increase the sales of the company
