Question

Goltz Company manufactures three products in its plant: X, Y, and Z.
Unit costs and machine hour usage for the three products are:
			X	Y	Z
	Direct materials		$28	$40	$75
	Direct labor		$25	$35	$50
	Machine hours		1	1.5	3
	Budgeted production (units)		20,000	12,000	3,000
a)	Assume that Goltz uses a traditional method of overhead allocation, based on direct labor cost.
	Budgeted overhead for the period is $2,000,000.
	Compute the unit cost of production for products X,Y, and Z.
b)	Now assume that Goltz uses an ABC system with three cost drivers: machine hours, setups, and number of parts.
	Product X requires two setups per period, and requires six distinct parts. Product Y requires four setups, and ten parts. Product Z requires ten setups and sixteen parts.
	Cost pools:
	Setups	400,000
	Machine hours	1,300,000
	Parts	300,000
		2,000,000
	Compute the unit cost of production for products X, Y, and Z using the ABC system.
c)	Identify several possible advantages or disadvantages to Goltz of using the ABC method. (Limit 200 words).

Answer 1