cost accounting

Future Technology Company (FTC) manufactured several different models of overheadprojectors that it sold directly to private schools and universities in the Kingdom of Bahrain. The company is proud of the user-friendly nature of its projectors and high-definition graphical presentations. FTC purchased its raw materials in units that were made to its specifications. It used a single factory to manufacture all its overhead-projectors. The factory workers operated three kinds of machines; (i) Inspecting machines checked the raw materials and tested the components to assure that they met the company's specifications; (ii) Joining machines then joined various components together; and (iii) Assembly machines put all the components together into finished products (which varied by model type). About 40 percent of FTC's manufacturing overhead was for depreciation, maintenance, and repairs on the inspecting, joining, and assembly machines. The rest was in receiving and handling the raw materials, in adjusting the machines to set them up for each batch of overhead-projectors, and in inspecting the finished projectors and packing them for shipment. The actual manufacturing process (inspecting, joining, and assembly) was mainly automated, and FTC used little direct labor. Most of the projectors were sold in large quantities. However, the FTC 700 model did not. It represented a recent effort by FTC to enter the educational market by focusing on schools and universities who had large number of students and needed sophisticated overheadprojectors in their lecture halls and classrooms. It was a state-of-the-art projector model with several special features. More specifically, FTC (a) used a new processing chip that the company imported from Germany, (b) had special lamp that gave it extremely high-definition projected screens, and (c) was manufactured in very small batches to assure uniform quality from one projector to the next. FTC's budgeted direct-labor costs were $70 million. Based on expected sales, the company estimated that its raw material purchases and use would total $350 million. Manufacturing overhead was budgeted at $206 million, and currently was assigned to each projector on the basis of machine hours. Table 1 below shows the expected direct manufacturing cost for two of the company's projectors. The FTC 500 model was a very popular projector with a large production and sales volume. On the other hand, the quantity of FTC 700 s manufactured and sold was expected to be much lower than any of the company's other projectors. Nevertheless, The President of the company had thought that, when all manufacturing costs were considered, the FTC 700 would contribute a reasonable amount of money to FTC's selling, general, and administrative costs, and hence to the company's overall profits. The Presidents" concern had arisen because FTC's accountant had told him that he thought the company's traditional product-costing system was providing misleading cost information. He has developed an analysis of the budgeted manufacturing overhead costs, shown in Table 2 below. Data for the annual production of FTC 500 and FTC 700 overhead-projectors are shown in Table 3 below. The President commented: "I don't know quite what to make of all of these data. Clearly some analysis is required. I guess what I really need is a sense of the true manufacturing cost of each of these overhead-projectors. Even though we can't change the prices this year, we at least need to know if we're covering our full production cost on the FTC 700 model and have something left to contribute to the company's selling. general, and administrative costs. I had thought this was the case, but now I'm not so sure". Table 1. Direct Manufacturing Costs for One Overhead-projector Prage 2 or 5 Table 2: Analvsis of Annual Budected Manufacturing Overhead Costs Table 3: Annual Production Data for FTC 500 and FTC 700 Overhead-projectors 1. Determine the following: a) What is the full product cost of ONE unit of FTC 500 and ONE unit of FTC 700 under the current product costing system? b) Assume that FTC sets the selling price based on full product cost plus a markup of 50% of total full product cast. Determine the selling price per unit for both FTC 500 and FTC 700. c) If the selling price, after covering the full product costs, would contribute towards covering the selling, general and administrative (SG\&A) costs, what would be the contribution to SG\& A per overhead projector for both model FTC 500 and FTC 700 ? Also calculate the total contribution to SG\&A from the total units sold of both models. 2. Determine the following: a) What is the full product cost of ONE unit of FTC 500 and ONE unit of FTC 700 under activity-based costingsystem? b) Assume that FTC sets the selling price based on full product cost plus a markap of 50% of total full product cost. Determine the selling price per unit for both FTC 500 and FTC 700. c) If the selling price, after covering the full product costs, would contribute towards covering the selling, general and administrative (SG\&A) costs, what would be the contribution to SG\& A per overhead projector for both model FTC 500 and FTC 700 ? Also calculate the total contribution to SG\&A from the total units sold of both models. 3. Respond to the following directly in Blackboard: a) Based on your answers in requirements (1) and (2), what are the main differences between the two costing systems in FTC? b) What are the main factors/challenges FTC will need to deal with if it decides to shift to using activity-based costing system