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Bruno Inc. developed two products: HotPlay and ColdGame. The company had done a market survey and decided that a 50% mark up on total cost
Bruno Inc. developed two products: HotPlay and ColdGame. The company had done a market survey and decided that a 50% mark up on total cost to get a target price is reasonable. However, the data on current and target sales prices as follows is very confusing to the company's controller. HotPlay ColdGame Target Price (in $, at 150% of total cost) 859.50 663.75 Actual Current Selling Price in ) 639.00 700.00 Target price achieved (?) No Yes The controller knew that the company could no longer increase the price of HotPlay because of the competition. He also knew that even though the company had achieved the target price for ColdGame, the current sales price of ColdGame is still one of the lowest in the industry. He is wondering whether there had been an under or over costing for the products. Currently, Bruno Inc is using traditional costing in allocating its overhead cost to the products. The predetermined OH rate is calculated based on the total direct labor cost budget. Direct labor cost is $20 per hour. Other data for HotPlay and ColdGame: Annual Production & Sales Raw Material Cost per unit Direct Labor Hour per unit Machine Hour needed per unit HotPlay 8,000 units $ 105.00 2.4 hour 1 hour ColdGame 4,000 units $ 52.50 2.0 hour 2 hour Bruno Inc. developed two products: HotPlay and ColdGame. The company had done a market survey and decided that a 50% mark up on total cost to get a target price is reasonable. However, the data on current and target sales prices as follows is very confusing to the company's controller. HotPlay ColdGame Target Price (in $, at 150% of total cost) 859.50 663.75 Actual Current Selling Price in ) 639.00 700.00 Target price achieved (?) No Yes The controller knew that the company could no longer increase the price of HotPlay because of the competition. He also knew that even though the company had achieved the target price for ColdGame, the current sales price of ColdGame is still one of the lowest in the industry. He is wondering whether there had been an under or over costing for the products. Currently, Bruno Inc is using traditional costing in allocating its overhead cost to the products. The predetermined OH rate is calculated based on the total direct labor cost budget. Direct labor cost is $20 per hour. Other data for HotPlay and ColdGame: Annual Production & Sales Raw Material Cost per unit Direct Labor Hour per unit Machine Hour needed per unit HotPlay 8,000 units $ 105.00 2.4 hour 1 hour ColdGame 4,000 units $ 52.50 2.0 hour 2 hour
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