19 Three Cost Pool System Cost allocation rate is 113 per machine hour for the

# 19 three cost pool system cost allocation rate is 113

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19 Three Cost Pool System Cost allocation rate is 113 per machine hour for the mechanical room 64 per machine hour for the main test room Mechanical testing more expensive than electrical testing Components that consume relatively more machine hours in the mechanical room compared to the hours in the main room will have higher reported product costs These components are ICA, ICB, capacitor, and diode
20 Comparing Product Costs Product Single cost pool Two cost pools Three cost pools ICA 2247 2580 2766 ICB 5025 5661 6281 Capacitor 2680 1913 2011 Amplifier 1286 1030 995 Diode 1272 1583 1629
21 Comparing the Cost SystemsAre the new product costs more accurate than the old ones? What does accurate mean in this context? Are true product costs observable?What is an optimal cost system?
22 New Machine ETO is thinking about buying a new machine New machine is useful only for 1 or 2 customers Will be located in the main test room Should the new machine be a separate cost pool? or part of the main test room?
23 Separate Cost Pool Overhead cost rate for new machine Variable Depreciation Other Total YEAR 1 Machine costs Machine hours Burden rate per machine hours 100,000 400 \$250 500,000 \$1,250 225,000 \$562.50 825,000 2,062.50 YEAR 3 Machine costs Machine hours Burden rate per machine hours 100,000 2,400 \$41.67 281,250 \$117,19 150,000 \$62.50 531,250 \$221.35
24 Double Declining Balance Depreciation NBV = net book value Depreciation(P1) = NBV(P0) * 2/N = 2,000,000 * 2/8 = 500,000 NBV(P1) = 2,000,000 - 500,000 = 1,5M Depreciation(P2) = 1,5M*2/8 = 375,000 NBV(P2) = 1,5M – 375,000 = 1,125,000 Depreciation(P3) = 1,125,000*2/8 = 281,250
25 Main Test Room Burden Rates with New Machine Variable Depreciation Other Total Year 1 Existing costs Machine costs Total costs Machine hours Burden rate per mach. hr 887,379 100,000 987,379 29.56 88,779 500,000 588,779 17.63 1,126,958 225,000 1,351,958 40.48 2,103,116 825,000 2,928,116 33,000+400 87.67 Year 3 Existing costs Machine costs Total costs Machine hours Burden rate per mach. hr 887,379 100,000 88,779 281,250 1,126,958 150,000 2,103,116 531,250 2,634,366 33,000+2400 74.42

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• Fall '16