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After attending a seminar on measuring customer profitability, Mason Ford decided to examine Olson Optics' customers to determine if the company truly knew how profitable
After attending a seminar on measuring customer profitability, Mason Ford decided to examine Olson Optics' customers to determine if the company truly knew how profitable its customers were. Olson Optics already uses an activity-based costing system to determine the product cost of its two products: RF30 and LF45. Each RF30 sells for $17 and requires $8.00 in direct materials and $5.00 in direct labor. Each LF45 sells for $50 and requires $17.00 in direct materials and $13.60 in direct labor. The following table provides cost and activity information for manufacturing overhead for the two products. Number of Activities Activity Cost Pool Cost Driver Packing Cartons Setup Setup hours Assembly Spot welds Finishing Machine hours Total manufacturing overhead costs Units produced Manufacturing Overhead Costs $187,500 412,500 624,000 350,000 $1,574,000 RF30 375,000 10,000 130,000 20,000 LF45 250,000 27,500 260,000 80,000 Total 625,000 37,500 390,000 100,000 500,500 214,700 Based on what Ford learned at the seminar, he has gathered the following information about customer support activities. Activity Cost Pool Order entry Customer support Sales calls Express shipping Total selling costs Cost Driver Orders Support hours Sales calls Shipments Selling Costs $240,000 150,000 260,000 154,000 $804,000 Driver Volume 40,000 5,000 2,000 7,000 Ford wants to apply his new profitability analysis techniques to Infrared Technologies, a company he believes is representative of Olson's average customer. Information about Infrared's account activity is as follows. RF30 purchases LF45 purchases Orders placed Customer support Sales calls Express shipments 10,000 units 3,000 units 120 360 hours 21 90 Calculate the activity-based product cost for RF30 and LF45. (Round answers to 2 decimal places, e.g. 15.25.) RF30 LF45 Total unit cost $
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