Assign nment 1 Demski Company ha used a two C as o-stage cost allocation sy ystem for ma years. In the first sta

| March 31, 2017

Question
Assign
nment 1
Demski Company ha used a two
C
as
o-stage cost allocation sy
ystem for ma years. In the first sta
any
n
age,
plant ove
erhead costs are allocated to two production depa
d
artments, P1 and P2, bas on mach
1
sed
hine
hours. In the second stage, Dems uses direc labor hour to assign o
n
ski
ct
rs
overhead co from the
osts
productio departments to individual product A and B.
on
ts
Budgeted factory ove
d
erhead costs for the year are $300,00 Both the budgeted an actual
r
00.
nd
machine hours in P1 and P2 are 12,000 and 28,000 hours respective
1
2
s,
ely.
After atte
ending a sem
minar to learn the potenti benefits o adopting a activity-b
n
ial
of
an
based costing
g
system (A
ABC), Ted Demski, the president of Demski Co
D
f
ompany, is co
onsidering im
mplementing an
g
ABC sys
stem. Upon his request, the controlle at Demski Company h compiled the following
h
t
er
has
d
informati for analy
ion
ysis:

m
es
r
following information is
s
Demski manufacture two types of product, A and B, for which the f
available
e:

Required: (Round calculations to two decimal places)
(a) Determine the unit cost for each of the two products using the traditional two-stage allocation
method.
(b) Determine the unit cost for each of the two products using the proposed ABC system.
(c) Why do the two cost systems differ in their total cost for each product?
(d) Why might these differences be important to the Demski Company?

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