California Circuits Company (3C) manufactures a variety of components. Its Valley plant specializes in two electronic components
Question:
California Circuits Company (3C) manufactures a variety of components. Its Valley plant
specializes in two electronic components used in circuit boards. These components serve the same
function and perform equally well. The difference in the two products is the raw material. The XLD
chip is the older of the two components and is made with a metal that requires a wash prior to
assembly. Originally, the plant released the wastewater directly into a local river. Several years
ago, the company was ordered to treat the wastewater before its release, and it installed relatively
expensive equipment. While the equipment is fully depreciated, annual operating expenses of
$250,000 are still incurred for wastewater treatment.
Two years ago, company scientists developed an alloy with all of the properties of the raw
materials used in XL-D that generates no wastewater. Some prototype components using the new
material were produced and tested and found to be indistinguishable from the old components in
every way relating to their fitness for use. The only difference is that the new alloy is more
expensive than the old raw material. The company has been test-marketing the newer version of
the component, referred to as XL-C, and is currently trying to decide its fate.
Manufacturing of both components begins in the Production Department and is completed in
the Assembly Department. No other products are produced in the plant. The following provides
information for the two components:
| XL-D | XL-C | |
| Units produced | 100,000 | 25,000 |
| Direct material costs per unit | $12 | $14 |
| Direct Labor Information | ||
| Direct labor-hours per unitProduction | 0.1 | 0.1 |
| Direct labor-hours per unitAssembly | 0.4 | 0.4 |
| Direct labor rate per hourall labor | $20 | $20 |
| Other Activity Information | ||
| Machine-hours per unitProduction | 1.6 | 1.6 |
| Machine-hours per unitAssembly | 0.4 | 0.4 |
| Testing hours per unit | 3.0 | 3.0 |
| Shipping weight per unit (pounds) | 1.0 | 1.6 |
| Wastewater generated per unit (gallons) | 10.0 | 0.0 |
Annual overhead costs for the two departments follow:
| Production Department | Assembly Department |
| $1,050,000 | $500,000 |
The company president believes that it's foolish to continue producing two essentially
equivalent products. At the same time, the corporate image is somewhat tarnished because of a
toxic dump found at another site (not the Valley plant). The president would like to be able to point
to the Valley plant as an example of company research and development (R&D) working to
provide an environmentally friendly product. The controller points out to the president that the
company's financial position is shaky, and it cannot afford to make products in any way other than
the most cost-efficient one.
C. The company decides to compute product costs assuming they implement an Activity Based Costing (ABC) system. The company first assigns all overhead to one of six cost pools. The overhead cost pools and the cost drivers selected for those cost pools are:
| Overhead Cost Pool | Cost Pool Total | Cost Pool Driver |
| Supervision | $ 340,000 | Direct labor hours |
| ProMaterial Handling | $ 133,000 | Direct material cost |
| Testing | $ 150,000 | Testing hours |
| Wastewater treatment | $ 300,000 | Wastewater generated (gal) |
| Equipment depreciation | $ 500,000 | Machine hours |
| Shipping | $ 127,000 | Weight (pounds) |
What would the per unit product cost be reported for each product if this ABC system were implemented? Assume that the production mix and costs would remain as originally planned.Use the tab "Requirement C" in the Excel template to answer this question. Set up a chart similar to Exhibit 9.16 in the textbook (see page 368) to show your answer. Do not round intermediate calculations. You must show the work of your calculations, so you must use cell referencing to set up the elements in your chart.
D.Please briefly discuss the advantages and disadvantages of the three cost allocation methods
above, including traditional single plantwide rate cost allocation, two-stage departmental allocation, and activity-based costing. What is your suggestion for the president if you were the
controller? Write you answer on a Word document that you will submit to the assignment submission on Blackboard.
Expert Answer:
ActivityBased Costing ABC is a costing method that identifies and assigns costs to activities based on their consumption of resources It recognizes th... View the full answer
