what\'s the solution explain calculation in breif Environmental costs, activity-
ID: 2538860 • Letter: W
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what's the solution explain calculation in breif
Environmental costs, activity-based costingBevans Co. makes two products, Product X and Product Y. Bevans has produced Product X for many years without generating any hazardous wastes. Recently, Bevans developed Product Y, which is superior to Product X in many respects. However, production of Product Y generates hazardous wasles. Because of the hazardous wastes, Bevans now must deal with hazardous waste disposal, governmental environmental reports and inspections, and safe handling procedures. Bevans Co, uses an indirect cost rate based on machine hours to assign manufacturing support costs to its two products. Because of concerns about the accuracy of the product costing system, Joel Dempsey, the controller, undertook an activity-based costing analysis of the manufacturing support costs, including an analysis of the support costs related to Product Y's generation of hazardous wastes. The resulting cost information, as well as machine hours and number of units, is summarized in the following table: PRODUCT X PRODUCTY Direct costs (material plus labor) | S9. 000.000 54000,000 Environmental support costs $14.000,000 Nonenvironmental support costs $22,000,000 $29,000,000 Total machine hours 10000,000 6,000,000 Number of units 100 000,000 40.000,000 Required (a) Compute product costs per unit for Products X and Y using the current indirect cost rate based on machine hours for manufacturing support costs (b) Compute product costs per unit for Products X and Y using the activity-based costing figures provided in the table (c) Explain the reasons for the diferences in cost for each product using the tvo cost systems (d) Bevans has been selling Products X and Y at price equal to 5 tres the product cost computed using the machine-hour-based cost driver rate for manufacturing support costs Compute these prices and provide recommendations to Bevans management conceming improvement through pricing changes and cost reduction through manufacturing improvements s for the differences in cost for each product using the two cost systemsExplanation / Answer
Compute product costs per unit for products X and Y using the current cost driver rate base on machine hours for manufacturing support costs.
(a)
Product X
Product Y
Direct costs
(material plus labor)
$9,000,000
$4,000,000
Non environmental support costs
22,000,000
29,000,000
Environmental support
—
14,000,000
Total support costs
$22,000,000
$43,000,000
$65,000,000
Total machine hours
10,000,000
6,000,000
16,000,000
Number of units
100,000,000
40,000,000
Current cost driver rate:
Total support ¸ machine
hours
$4.0625
Costs using current cost
driver rate
Direct costs
(material plus labor)
$ 9,000,000
$ 4,000,000
Applied support:
$4.0625 per machine hour
40,625,000
24,375,000
Total costs
$49,625,000
$28,375,000
Number of units
100,000,000
40,000,000
Cost per unit
$0.50
$0.71
(b)
Per unit
Product X
Product Y
X
Y
Direct costs
(material plus labor)
$ 9,000,000
$ 4,000,000
$0.09
$0.10
Non environmental support cost
22,000,000
29,000,000
0.05
0.20
Environmental support
—
14,000,000
—
0.35
Total support
$22,000,000
$43,000,000
$0.22
$1.08
Total costs
$31,000,000
$47,000,000
Number of units
100,000,000
40,000,000
Cost per unit using ABC
$0.31
$1.18
(d)
Product X
Product Y
Cost per unit using current cost driver rate
$0.50
$0.71
Price, 1.5 ´ cost
$0.75
$1.07
Cost per unit using ABC
$0.31
$1.18
Price, 1.5 ´ cost
$0.47
$1.77
Of the two costing systems here, the activity-based costing system more accurately assigns costs of resource usage to the two products.
(a)
Product X
Product Y
Direct costs
(material plus labor)
$9,000,000
$4,000,000
Non environmental support costs
22,000,000
29,000,000
Environmental support
—
14,000,000
Total support costs
$22,000,000
$43,000,000
$65,000,000
Total machine hours
10,000,000
6,000,000
16,000,000
Number of units
100,000,000
40,000,000
Current cost driver rate:
Total support ¸ machine
hours
$4.0625
Costs using current cost
driver rate
Direct costs
(material plus labor)
$ 9,000,000
$ 4,000,000
Applied support:
$4.0625 per machine hour
40,625,000
24,375,000
Total costs
$49,625,000
$28,375,000
Number of units
100,000,000
40,000,000
Cost per unit
$0.50
$0.71
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