Churchill Products is considering updating its cost system to an activity-based costing system and is interested in understanding the effects. The company's cost accountant has identified three overhead cost pools along with appropriate cost drivers for each pool.

Cost Pools Costs Activity Drivers Utilities$335,00067,000 machine-hours Scheduling and setup290,000580 setups Material handling775,0001,550,000 pounds of material

The company manufactures three models of water basins (Oval, Round, and Square). The plans for production for the next year and the budgeted direct costs and activity by product line are as follows.

ProductsOvalRoundSquareTotal direct costs (material and labor)$80,000$90,000$80,000Total machine-hours35,00012,00020,000Total number of setups80300200Total pounds of material460,000310,000780,000Total direct labor-hours3,5001,0005,500Number of units produced3,8002,2006,000

Required:

a.The current cost accounting system charges overhead to products based on direct labor-hours. What unit product costs will be reported for the three products if the current cost system continues to be used?

c.What are the cost driver rates for the three cost pools identified by the cost accountant?

d.What unit product costs will be reported for the three products if the ABC system suggested by the cost accountant's classification of cost pools is used?

e.If management should decide to implement an activity-based costing system, what benefits should it expect?

Answer rating: 100% (QA)

a Unit Product Costs under the Current Cost Accounting System Using the direct laborhour allocation method the overhead cost per unit can be calculate... View the full answer