The Glasgow Electronics Company produces three types of circuit boards: L, M, and N. The cost accounting system used by Glasgow until 2012 applied all costs except direct materials to the products using direct-labour-hours as the only cost driver. In 2012 the company undertook a cost study. The study determined that there were six main factors causing costs to be incurred. A new system was designed with a separate cost pool for each of the six factors. The factors and the costs associated with each are as follows:

1. Direct-labour-hours—direct labour cost and related employee benefits and payroll taxes.

2. Machine-hours—depreciation and repairs and maintenance costs.

3. Kilograms of materials—materials receiving, handling, and storage costs.

4. Number of production setups—labour used to change machinery and computer configurations for a new production batch.

5. Number of production orders—costs of production scheduling and order processing.

6. Number of orders shipped—all packaging and shipping expenses.

The company is now preparing a budget for 2013. The budget includes the following predictions:

The total budgeted cost for 2012 is £3,712,250, of which £955,400 was direct materials cost, and the amount in each of the six pools defined above is:

Cost Pool                             Cost
1 .....................................£1,391,600
2 ..........................................936,000
3...........................................129,600
4 ..........................................160,000
5 ............................................25,650
6 ..........................................114,000
Total ...............................£2,756,850

1. Prepare a budget that shows the total budgeted cost and the unit cost for each circuit board. Use the new system with six cost pools (plus a separate direct application of direct materials cost).

2. Compute the budgeted total and unit costs of each circuit board if the old system based on direct-labour-hours had been used.

3. How would you judge whether the new system is better than the old one?

Transcribed Image Text:

Board L Board M Board N Units to be produced 10,000 800 5,000 Direct materials cost £66/unit £88/unit £45/unit Direct-labour-hours 4/unit 18/unit 9/unit Machine-hours 7/unit 15/unit 7/unit Kilograms of materials Number of production setups 2/unit 3/unit 4/unit 100 50 Number of production orders Number of orders shipped 300 200 70 800 1,000 2,000