Thursday, August 22, 2013

Ram Industries produces two products in its Windsor, CO plant: X5 and Y12

Ram Industries produces two products in its Windsor, CO plant: X5 and Y12. For the coming year, budgeted production of X5 is 100,000 units and of Y12 is 80,000 units. Expected costs and activity are as follows:



Dir Mat Dir Labor Mach Hrs Setups Parts*



X5 $700,000 $1,600,000 18,000 120 10

Y12 $1,000,000 $2,400,000 32,000 280 20



* number of unique parts for this model



Factory overhead is expected to be $7,000,000.



Assume that Ram uses a traditional costing system with a single plant-wide overhead pool allocated on the basis of direct labor cost. Determine the total budgeted cost per unit of the two products. Show your calculations.
Assume instead that Ram uses an ABC system with three cost drivers: machine hours, setups, and number of unique parts. The budgeted amounts of the three cost pools are:
Machine Hours $4,000,000

Setups $2,100,000

Parts $ 900,000

Determine the cost per unit under the ABC system.


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