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 $ 290,000 58,000 machine-hours Scheduling and setup 310,000 620 setups Material handling 805,000 1,610,000 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. Products Oval Round Square Total direct costs (material and labor) $ 80,000 $ 90,000 $ 70,000 Total machine-hours 30,000 10,000 18,000 Total number of setups 80 320 220 Total pounds of material 460,000 320,000 830,000 Total direct labor-hours 3,500 1,500 5,000 Number of units produced 4,200 2,000 6,000 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?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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
| Cost Pools | Costs | Activity Drivers | |||
| Utilities | $ | 290,000 | 58,000 | machine-hours | |
| Scheduling and setup | 310,000 | 620 | setups | ||
| Material handling | 805,000 | 1,610,000 | 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.
| Products | |||||||||
| Oval | Round | Square | |||||||
| Total direct costs (material and labor) | $ | 80,000 | $ | 90,000 | $ | 70,000 | |||
| Total machine-hours | 30,000 | 10,000 | 18,000 | ||||||
| Total number of setups | 80 | 320 | 220 | ||||||
| Total pounds of material | 460,000 | 320,000 | 830,000 | ||||||
| Total direct labor-hours | 3,500 | 1,500 | 5,000 | ||||||
| Number of units produced | 4,200 | 2,000 | 6,000 | ||||||
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?
As you have posted multiple independent questions, we are answering the first three questions. Kindly repost the unanswered questions as a separate question
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
