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ACC Assignment 1- Minihaha Electronics Company




Question;Assignment 1: Minihaha Electronics Company The company has established the following 3 cost pools for its manufacturing overheads:Cost Pool Manufacturing OverheadS $640,000P1 400,000P2 200,000Total $1,240,000Pool S includes all support activity costs at the plant. P1 and P2 include overhead costs traced directly to the 2 production departments, fabrication (P1) and assembly (P2). The current cost accounting system at the plant employs a two stage cost allocation method that first allocates overhead costs in pool S to the pools P1 and P2 on the basis of machine hours and then assigns the accumulated overhead costs in the pools P1 and P2 to the 2 products on the basis of direct labour hours. A separate overhead rate is computed for each of the 2 production departments. The direct labour wage rate including benefits, is $15 per hour.The following information is made available: Exhibit 1 contains the information for the traditional costing system (and some of the activity costing information) while exhibit 2 has the remaining information for the activity based costing system.Exhibit One:DepartmentDirect Labour Hours Hours (DLH)CD107CD635TotalFabrication20,00020,00040,000Assembly (P2)25,00015,00040,000Total45,00035,00080,000Direct Labour$DepartmentMachine Hours (MH)CD107CD635TotalFabrication27,00018,00045,000Assembly (P2)20,00015,00035,000Total47,00033,00080,000CD107CD635Sales price per$260$220Direct material$80$40Units8,0006,000The plant is considering implementing an activity-based costing system. The controller has compiled the information contained in the spreadsheet as Exhibit 2, to reassign the overhead costs for June 2014 from the existing overhead cost pools (S, P1, P2) to 5 new activity cost pools.Exhibit Two:Activity Cost DriversExistingTotalSP1P2P1 - DLH$ 40,000$ 40,000-$ 80,000P2 - DLH$150,000-$ 80,000$ 230,000P1 - MH$50,000$110,000-$ 160,000P2 - MH$60,000-$40,000$ 100,000Setup Hours$340,000$250,000$80,000$ 670,000Total$640,000$400,000$200,000$ 1,240,000The number of setups in June 2008 was 1,000 for each of the 2 products, but each setup for CD107 takes twice as long as a setup for CD635.? Required:1. Determine the product cost per unit for both CD107 and CD635 using the existing cost accounting system 10 marks2. Determine the product cost per unit for the 2 products using the proposed activity-based costing system. 10 marks3. Explain why the product costs are different under the 2 cost accounting systems. Your explanation should be in language that the marketing and production managers can understand. Write around 200 words 15 marks4. What suggestions do you have to make this business more profitable? Write around 300 words. 15 marks


Paper#40719 | Written in 18-Jul-2015

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