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    Product price per unit for Bevan's company

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    CASES 7-61
    Bevans Company makes two products, product X and product Y. Bevans has produced product X for many years without generating any hazardous wastes. Recently, Bevans developed product Y, which is superior to product X in many respects. However, production of product Y generates hazardous wastes. Because of the hazardous wastes, Bevans must deal with hazardous waste disposal, government environmental reports and inspections, and safe handling procedures.
    Bevans Company uses a cost driver rate based on machine hours to assign manufacturing support costs to its two products. Because of concerns about the accuracy of the product costing system, Joel Dempsey, the controller, undertook an activity based costing analysis of the manufacturing support costs. The resulting cost information is summarized in the following table:
    Product X Product Y
    Direct costs (material and Labor) $9,000,000 $4,000,000
    Unit Level support $2,000,000 $1,000,000
    Batch Level support $15,000,000 $20,000,000
    Product Level support $5,000,000 $8,000,000
    Environmental support -- $14,000,000
    Total machine hours 10,000,000 6,000,000
    Number of units 100,000,000 40,000,000
    (a) Compute product costs per unit for products X and Y using the current cost driver rate based on machine hours for manufacturing support costs.
    (b) Compute product costs per unit per unit for products X and Y using the activity based costing figures provided in the table.
    c) Explain the reasons for the differences in cost for each product using the two cost systems.
    (d) Bevans has been selling products X and Y at a price equal to 1.5 times the product cost computed using the machine hour based cost driver rate for manufacturing support costs. Compute these prices and provide recommendations to Bevans management concerning profit improvement through pricing changes and cost reduction through manufacturing improvements.

    (a)

    Product X Product Y Totals
    Direct costs(material plus labor)
    Unit-level support
    Batch-level support
    Product-level support
    Environmental support
    Total support
    Total machine hours
    Number of units
    Current cost driver rate:
    Total support machine hours

    Costs using current cost driver rate
    Direct costs (material plus labor)
    Applied support:$4.06 per machine hour
    Total costs
    Number of units
    Cost per unit

    (b) Per unit
    Costs Unit Costs
    Product X Product Y X Y
    Direct costs(material plus labor)
    Unit-level support
    Batch-level support
    Product-level support
    Environmental support
    Total support
    Total costs
    Number of units
    Cost per unit using ABC
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    https://brainmass.com/business/accounting/product-price-unit-bevans-company-76645

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    Solution Summary

    Word document contains calculation of product price per unit using traditional method and activity based costing.

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