a. Calculate the unit cost for each product using the appropriate cost drivers for each product. Note: Round your final answers to two decimal places (i.e. round $4.355 to $4.36). Product A Product B Product C Unit cost Answer Answer Answer b. Before it installed an ABC system, Chester used a traditional costing system that allocated factory overhead to products using direct labor hours. The firm operates in a competitive market and sets product prices at cost plus a 25 percent markup. Calculate the unit cost for each product based on traditional costing. Note: Round your final answers to two decimal places (i.e. round $4.355 to $
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.
ABC; pricing
Chester Inc. has identified activity centers to which overhead costs are assigned. The cost pool amounts for these centers and their selected activity drivers for the year follow.
| Activity Centers | Costs | Activity Drivers |
|---|---|---|
| Utilities | $1,080,000 | 90,000 machine hours |
| Scheduling and setup | 982,800 | 1,170 setups |
| Material handling | 2,304,000 | 2,400,000 pounds of material |
The company’s products and other operating statistics follow.
| Product A | Product B | Product C | |
|---|---|---|---|
| Direct costs | $72,000 | $72,000 | $81,000 |
| Machine hours | 45,000 | 15,000 | 30,000 |
| Number of setups | 195 | 570 | 405 |
| Pounds of material | 750,000 | 450,000 | 1,200,000 |
| Number of units produced | 60,000 | 30,000 | 90,000 |
| Direct labor hours | 48,000 | 27,000 | 75,000 |
a. Calculate the unit cost for each product using the appropriate cost drivers for each product.
Note: Round your final answers to two decimal places (i.e. round $4.355 to $4.36).
| Product A | Product B | Product C | |
|---|---|---|---|
| Unit cost | Answer
|
Answer
|
Answer
|
b. Before it installed an ABC system, Chester used a traditional costing system that allocated factory overhead to products using direct labor hours. The firm operates in a competitive market and sets product prices at cost plus a 25 percent markup. Calculate the unit cost for each product based on traditional costing.
Note: Round your final answers to two decimal places (i.e. round $4.355 to $4.36).
| Product A | Product B | Product C | |
|---|---|---|---|
| Unit cost | Answer
|
Answer
|
Answer
|
c. Determine selling prices based on unit costs for traditional costing, using the rounded rate from part (b).
Note: Round your final answers to two decimal places (i.e. round $4.355 to $4.36).
| Traditional costing | Product A | Product B | Product C |
|---|---|---|---|
| Selling price | Answer
|
Answer
|
Answer
|
d. Determine selling prices based on unit costs for ABC, using the rounded rates from part (a).
Note: Round your final answers to two decimal places (i.e. round $4.355 to $4.36).
| Traditional costing | Product A | Product B | Product C |
|---|---|---|---|
| Selling price | Answer
|
Answer
|
Answer
|
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