E4-22A Reassess product costs using ABC (Learning Objective 2) Reynolds, Inc., manufactures only two products, Medium (42-inch) and Large (63-inch) TVs. To generate adequate profit and cover its expenses throughout the value chain, Reynolds prices its TVs at 300% of manufacturing cost. The company is concerned because the Large model is facing severe pricing competition, whereas the Medium model is the low-price leader in the market. The CEO questions whether the cost numbers generated by the accounting system are correct. He has just learned about ABC and wants to reanalyze this past year's product costs using an ABC system. Information about the company's products this past year is as follows Total direct material cost: $669,000 Total direct labor cost: $225,000 Production volume: 3,160 units Total direct material cost: $1,270,000 Total direct labor cost: $385,000 Production volume: 4,160 units Currently, the company applies manufacturing overhead on the basis of direct labor hours. The company incurred $824,000 of manufacturing overhead this year and 26,500 direct labor hours (9,900 direct labor hours making Medium TVs and 16,600 making Large TVs). The ABC team identified three primary production activities that generate manufacturing overhead costs Materials Handling ($160,000), driven by number of material orders handled Machine Processing ($S564,000); driven by machine hours Pack $100,000): driven hours The company's only two products required the following activity levels during the year: Material OrdersMachine Packaging Handidine Hours 21,400 23,000 Hours 4,140 6,060 Medium 300 240 Requirements 1. Use the company's current costing system to find the total cost of producing all Medium (42-inch) TVs and the total cost of producing all Large (63-inch) TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent. Use ABC to find the total cost of producing all Medium (42-inch) TVs and the total cost of producing all Large (63-inch) TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent 2. E4-20A Using ABC to bill clients at a service firm (Learning Objective 2) Haas & Company is an architectural firm specializing in home remodeling for private clients and new office buildings for corporate clients. Haas charges customers at a billing rate equal to 131% of the client's total job cost. A client's total job cost is a combination of (1) professional time spent on the client (S62 per hour cost of employing each professional) and (2) operating overhead allocated to the client's job. Haas allocates operating overhead to jobs based on professional hour spent on the job. Haas estimates its five professionals will incur a total of 10,000 profes- sional hours working on client jobs during the year All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the three activi- ties. Total activity costs, cost drivers, and total usage of those cost drivers are estimated as follows: Total Usage by Corporate Clients Total Usa Total Activity Cost by Privat Clients Cost Driver S 9,500 miles 8,000 37,000 Round-trip mileage to c Number of copies 5,500 miles Transportation to clients Blueprint copying Office support 800 copies 200 copies 2,900 secretarial hours 185,000 Secretarial time 2,100 secreta hours Total operating overhead 230,000 Sabrina Yu hired Haas to design her kitchen remodeling. A total of 24 professional hours were incurred on this job. In addition, Yu's remodeling job required one of the professionals to travel back and forth to her house for a total of 126 miles. The blueprints had to be copied four times because Yu changed the plans several times. In addition, 13 hours of secretarial time were used lining up the subcontractors for the job Requirements 1. Calculate the current indirect cost allocation rate per professional hour 2. Calculate the amount that would be billed to Yu given the current costing structure 3. Calculate the activity cost allocation rates that could be used to allocate operating overhead costs to client jobs 4. Calculate the amount that would be billed to Yu using ABC costing 5. Which type of billing system is more fair to clients? Explain