Services, Cost Systems, and the Income Statement
Celestial Funeral Home offers a full range of services. Based on past experience, Celestial uses the following formula to describe its total overhead costs: Y = $200,000 + $50X, where Y = total overhead costs and X = number of funerals. Overhead costs are assigned by dividing total overhead costs by the number of funerals. For a given funeral, the cost of direct materials ranges from $1,500 to $10,000, depending on the family's selection of a coffin. The average cost is $4,000. Direct labor averages $1,000 per funeral. During 2008, Celestial con- ducted 1,000 funerals. The average price charged for each funeral is $7,000. Celestial incurs annual selling expenses of $50,000 and administrative expenses of $150,000.
Required
1. Does Celestial sell a tangible or an intangible product? Explain.
2. Does Celestial use a functional-based or an activity-based management accounting system? Explain. Do you think this is a good choice? Explain.
3. What is the total overhead cost incurred by Celestial for the year?
4. What is the overhead cost per funeral for the year?
5. Calculate the unit product cost for the year.
6. Prepare an income statement for Celestial.