The following estimates are available for Violette Manufacturing for 2004.

Violette Manufacturing uses a traditional overhead allocation system. Manufacturing overhead is allocated based on direct labor hours.
Violette Manufacturing’s sales manager has submitted a proposal that would shift the marketing focus to low-volume products such as the FP222. The proposal is prompted by the higher markups that can be charged for these products without customer complaint.

The company president is concerned that the company’s cost per unit may be sending the wrong message. He recently learned of activity-based costing and wonders if it might help.
Assume that you are part of a group that has been assigned to review the situation.
Required:

a. Determine the per unit cost for FP111 and FP222 using direct labor hours as the allocation base for all manufacturing overhead cost.

b. Determine the per unit cost for FP111 and FP222 using activity-based costing to allocate manufacturing overhead cost. (Note: pales other overhead cost based on direct labor hours.)

c. Discuss the marketing manager’s proposal in Fic of your findings. Discuss what would happen if the marketing manager’s sales strategy was adopted.

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Violette Manufacturing Estimated Manufacturing Overhead For the Year Ended December 31, 2004 Materials handling cost Product engineering Production machine setup Production machine depreciation Quality testing Other overhead cost Total manufacturing overhead $ 50,000 110,000 200,000 450,000 100,000 250,000 $1,160,000 Estimated Overhead Activities For the Year Ended December 31, 2004 Number of material movements Number of product engineering hours Number of machine setups 200,000 4,400 Number of machine hours Number of tests performed Number of direct labor hours 100 18,000 125,000 25,000 The following information is available for production runs of two products, the FP111 and the FP222: