=+6-52 KKK Activity-based costing, implementation, ethics (CMA, adapted) OBJECTIVES 3, 5, 7, 8 Eagle Electronics, a division of Bundle Ltd, manufactures two LCD screen television models: the Topaz, which has been produced since 2009 and sells for $900, and the Jade, a newer model introduced in early 2013, that sells for $1140. Based on the following income statement for the year ended 30 November 2014, senior management at Bundle Ltd have decided to concentrate Eagle Electronics’ marketing resources on the Jade model and to begin to phase out the Topaz model.

Eagle Electronics Income statement for the financial year ended 30 November 2014 Topaz Jade Total Revenues $19 800 000 $4 560 000 $24 360 000 Cost of goods sold 12 540 000 3 192 000 15 732 000 Gross margin 7 260 000 1 368 000 8 628 000 Selling and administrative expense 5 830 000 978 000 6 808 000 Operating profit $1 430 000 $390 000 $1 820 000 Units produced and sold 22 000 4 000 Net income per unit sold $65.00 $97.50 Unit costs for Topaz and Jade are as follows:

Topaz Jade Direct materials $208 $584 Direct manufacturing labour Topaz (1.5 hours × $12) 18 Jade (3.5 hours × $12) 42 Machine costsa Topaz (8 hours × $18) 144 Jade (4 hours × $18) 72 Manufacturing overhead other than machine costsb 200 100 Total cost $570 $798 a

Machine costs include lease costs of the machine, repairs and maintenance.

b Manufacturing overhead was allocated to products based on machine-hours at the rate of $25 per hour.

Eagle Electronics’ management accountant, Susan Church, 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 the year ended 30 November 2014.

Activity centre (cost-allocation base)

Total activity costs Units of the cost-allocation base Topaz Jade Total Soldering (number of solder points) $942 000 1 185 000 385 000 1 570 000 Shipments (number of shipments) 860 000 16 200 3 800 20 000 Quality control (number of inspections) 1 240 000 56 200 21 300 77 500 Purchase orders (number of orders) 950 400 80 100 109 980 190 080 Machine power (machine-hours) 57 600 176 000 16 000 192 000 Machine set-ups (number of set-ups) 750 000 16 000 14 000 30 000 Total manufacturing overhead $4 800 000