2. Cost for each system are as follows:
3. I prefer the system proposed by the consultant because it is the most detailed, therefore will produce more accurate costs.
4. The ideal allocation base should have a direct cause-and-effect relation with the costs incurred. Based on the data provided in the case, it appears that the consultant’s proposed cost system is adequate because it considers the appropriate cost pool and allocation base. However, it should be noted that developing a cost system that is more detailed require the use of more time and resources. There needs to be a proper balance between accuracy and cost.
5. There is significant cost involved in the purchase of new equipment. Although the machine will be located in the Main Room, I would use a separate cost pool when calculating the burden rate of the new machine. The purchase price of the machine is $2 million. I will add the one-time installation and programming cost to the acquisition cost of the machine since these costs are required in order to get the machine ready for use. I will calculate depreciation based on the machine’s practical capacity over its estimated life, instead of double declining method. It seems that the use of...