Queensland Electronics Company manufactures two large-screen television models, the Novelle, which has been produced for 10 years and sells for $910, and the Zodiac, a new model introduced in early 20x3, which sells for $1,160. Based on the following income statement for 20x4, a decision has been made to concentrate Queensland’s marketing resources on the Zodiac model and to begin to phase out the Novelle model.

The standard unit costs for the Zodiac and Novelle models are as follows:

Queensland Electronics Company’s controller is advocating the use of activity-based costing and activity-based management and has gathered the following information about the company’s manufacturing-overhead costs for 20x4.

Required:
1. Briefly explain how an activity-based costing system operates.
2. Using activity-based costing, determine if Queensland Electronics should continue to emphasize the Zodiac model and phase out the Novelle model.
(CMA,adapted)

Transcribed Image Text:

QUEENSLAND ELECTRONICS COMPANY Income Statement For The Year Ended December 31, 20x4 Novelle $20,020,000 13,024,000 6,996,000 5,700,000 $ 428,000 1,296,000 $1,724,000 Zodiac $4,640,000 3,232,000 $1,408,000 Total $24,660,000 16,256,000 $8,404,000 6,680,000 Sales Cost of goods sold Gross margin Selling and administrative expenses 980,000 Net income Units produced and sold 4,000 Net income per unit sold..$107.00 22,000 $ 58.91 Rounded Zodiac Novelle Direct material... Direct labor: $579 $211 Zodiac (3.5 hr x$14) Novelle (1.5 hr. × $14) 49 21 Machine usage Zodiac (4 hr × S19) Novelle (8 hr. X $19) 76 152 208 $592 Manufacturing overhead 104 Standard cost Manufacturing overhead was applied on the basis of machine hours at a predaternper hour $808 Number of Events Activity Center (cost driver) Soldering (number of solder joints) Shipments (humber of shipments) Quality control (number of inspections) Purchase orders (number of orders) Machine power (machine hours) Machine setups (number of setups) Total traceable costs Traceable Costs 880,000 836,000 1,170,000 1,110,000 Zodiac Novelle Total 400,000 1,200,000 1,600,000 15,200 56,940 79,550 174,800 4,985 3,800 21,060 105,450 15,200 4.500 19,000 78,000 185,000 190,000 9,485 47,500 948.500 S4,992,000