Reference no: EM132844568

Question - Carter Company manufactures two products, Deluxe and Regular, and uses a traditional two-stage cost allocation system. The first stage assigns all factory overhead costs to two production departments, A and B, based on machine hours. The second stage uses direct labor hours to allocate overhead to individual products.

For the current year, the firm budgeted $1,400,000 total factory overhead cost. The $1,400,000 was for the planned levels of machine and direct labor hours shown in the following table.

Production Department A Production Department B

Machine hours 5,600 22,400

Direct labor hours 28,000 14,000

The following information relates to the firm's operations for the month of January:

Deluxe Regular

Units produced and sold 280 1,120

Unit cost of direct materials $140 $70.00

Hourly direct labor wage rate $25 $28

Direct labor hours in Department A per unit 2 2

Direct labor hours in Department B per unit 1 1

Carter Company is considering implementing an activity-based costing system. Its management accountant has collected the following information for activity cost analysis for the current year:

Budgeted Budgeted Driver Consumption Activity Overhead Cost Driver Quantity Deluxe Regular

Material movement $9,800

Number of production runs 403.00 21.00 28

Machine setups 560,000

Number of setups 700 35.00 70.00

Inspections 823,200

Number of units 27,440 280 1,120

Shipment 7,000

Number of shipments 350.00 70.00 140 $1,400,000

Required -

1. Calculate the unit cost for each of the two products under the existing volume-based costing system.

2. Calculate the overhead per unit of the cost driver under the proposed ABC system.

3. Calculate the unit cost for each of the two products if the proposed ABC system is adopted.