A B D E F G H 1 P4-ZA Assign overhead to products using ABC and evaluate decision 2 Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,600 and 3 a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing 4 for each model in 2020 as follows. 5 6 Traditional Costing Royale Majestic 7 Direct materials $700 $420 8 Direct labor ($20 per hours) 120 100 9 Manufacturing overhead ($38 per DLH) 228 190 10 Total per unit cost $1,048 $710 11 12 In 2020, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of 13 $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the 14 total direct labor hours (200,000) for the two models. 15 Under traditional costing, the gross profit on the models was Royale 552 ($1,600 - $1,048) and Majestic $590 16 ($1,300 - $710). Because of this difference, management is considering phasing out the Royale model and increasing 17 the production of the Majestic model. 18 Before finalizing its decision, management asks Schultz's controller to prepare an analysis using activity-based 19 costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2020. 20 21 22 Activity Estimated Estimated Use Activity-Based 23 Cost Pools Cost Drivers Overhead of Cost Drivers Overhead Rates 24 Purchasing Number of orders $1,200,000 40,000 $30/order 25 Machine setups Number of setups 900,000 18,000 $50/setup 26 Machining Machine hours 4,800,000 120,000 $40/hour 27 Quality control Number of inspections 700,000 28,000 $25/inspection 28 29 The cost drivers used for each product were: 30 31 Cost Drivers Royale Majestic Total 32 Purchase orders 17,000 23,000 40,000 33 Machine setups 5,000 13,000 18,000 34 Machine hours 75,000 45,000 120,000 35 Inspections 11,000 17,000 28,000 36 37 Instructions 38 (a) Assign the total 2020 manufacturing overhead costs to the two products using activity based costing (ABC) and 39 determine the overhead cost per unit. 40 (b) What was the cost per unit and gross profit of each model using ABC costing? 41 (c) Are management's future plans for the two models sound? Explain. 42 43 NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?". 44 E4-14-404-9 P4-1A P4-2A N9 B D E c H 45 46 (a) The allocation of total manufacturing overhead using activity-based costing Is as follows: 47 48 Royale Majestic Total 49 Overhead Rate Drivers Used Cost Assigned Drivers Used Cost Assigned Overhead 50 Purchase order@$30 Value ? Value ? ? 51 Machine setups $50 Value 7 Value ? ? 52 Machine hours $40 Value ? Value ? ? 53 Inspections $25 Value ? Value ? ? 54 Total assigned costs (a) ? 7 55 56 Units produced (b) Value Value 57 58 Cost per unit (a) (b) ? ? 59 60 61 62 (b) The cost per unit and gross profit of each model under ABC costing were: 63 64 Royale Majestic 65 Direct materials Value Value 66 Direct labor Value Value 67 Manufacturing overhead Value Value Total cost per unit 7 7 69 70 Sales price per unit Value Value 71 Cost per unit Value Value 72 Gross profit per unit ? 73 74 75 (c) Are management's future plans for the two models sound? Explain. 76 77 78 79 80 81 82 83 After you have completed P4-2A, consider the additional question. 84 1. Assume that the purchase orders used by Royale and Majestic changed to 19,000 and 21,000 respectively. 85 Also assume that the number of inspections used by Royale and Majestic models changed to 12,000 and 16,000 86 respectively. Redo instructions (a) to (c) and round cost and gross profit per unit to two decimal points. 87 88 14-1 E4-4 E4-9 P4-1AP-2A + Normal View Ready 68
