Refer to Problem. The intern decides to look more closely at the manufacturing activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of on going manufacturing while engineering includes those activities dealing with engineering changes, design modifications, and so on. The costs attributed to production are $3,300,000 and the costs attributed to engineering are $2,200,000. After discussion with plant engineers, the intern decides that the best cost driver for engineering is setups, because most of the work arises from changes in the way the product is run.
In Problem 9-45, Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information.
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In this particular area, Cain produces two of its many products: Standard and Deluxe. The following are data for production for the latest full year of operations:
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Required :
a. What unit product costs will be reported for the two products if the revised ABC system is used?
b. Would you recommend that Cain Components adopt the intern's revised ABC system?Explain.