Problem 9-43 Activity-Based Costing, Cost Flow Diagram, and Predetermined Overhead Rates (LO 9-3, 5, 6)

Huron Furniture 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	$	372,000		62,000	machine-hours
Scheduling and setup		346,500		630	setups
Material handling		624,000		1,560,000	pounds of material

The company manufactures three models of tables (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:

	Products
	Oval			Round			Square
Total direct costs (material and labor)	$	80,000		$	90,000		$	70,000
Total machine-hours		35,000			8,000			19,000
Total number of setups		90			330			210
Total pounds of material		470,000			300,000			790,000
Total direct labor-hours		3,200			1,800			5,200
Number of units produced		3,800			2,100			5,800

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? (Do not round intermediate calculations. Round "Unit cost" amounts to 2 decimal places.)

(c)	What are the cost driver rates for the three cost pools identified by the cost accountant? (Round your answers to 2 decimal places.)

(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? (Do not round intermediate calculations. Round "Unit cost" amounts to 2 decimal places.)

(e)

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

	If management implemented an activity-based costing system it will increase the sales of the company.
	If management implemented an activity-based costing system it should be provided with a more thorough understanding of product costs.

rev: 11_17_2012