ACC Assignment 1- Minihaha Electronics Company

Assignment 1: Minihaha Electronics Company 
The company has established the following 3 cost pools for its manufacturing overheads:
Cost Pool Manufacturing Overhead
S $640,000
P1 400,000
P2 200,000
Total $1,240,000
Pool 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:
Department
Direct Labour Hours Hours (DLH)
CD107
CD635
Total
Fabrication
20,000
20,000
40,000
Assembly (P2)
25,000
15,000
40,000
Total
45,000
35,000
80,000
Direct Labour
$
Department
Machine Hours (MH)
CD107
CD635
Total
Fabrication
27,000
18,000
45,000
Assembly (P2)
20,000
15,000
35,000
Total
47,000
33,000
80,000
CD107
CD635
Sales price per
$260
$220
Direct material
$80
$40
Units
8,000
6,000
The 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 Drivers
Existing
Total
S
P1
P2
P1 - DLH
$ 40,000
$ 40,000
-
$ 80,000
P2 - DLH
$150,000
-
$ 80,000
$ 230,000
P1 - MH
$50,000
$110,000
-
$ 160,000
P2 - MH
$60,000
-
$40,000
$ 100,000
Setup Hours
$340,000
$250,000
$80,000
$ 670,000
Total
$640,000
$400,000
$200,000
$ 1,240,000
The 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 marks
2. Determine the product cost per unit for the 2 products using the proposed activity-based costing system. 10 marks
3. 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 marks
4. What suggestions do you have to make this business more profitable? Write around 300 words. 15 marks