Exercises 5-15 - Page 141 (6 points)

Sigma Company produces three versions of a brass desk lamp: basic, custom, and deluxe. The planned production information for the upcoming month follows:

Resources	Cost per Month	Fringe Benefits	Total	Hours per Month
Direct labor	$4,270	$800	$5,070	130
Indirect labor cost	$4,210	$600	4,810	130
Machinery	$50,000		$50,000	250
	Basic	Custom	Deluxe
Selling price per unit	$170	$190	$230
Direct materials cost per unit	$40	$50	$55

Production Information	Basic	Custom	Deluxe
Production and sales volume (units)	4,500	3,200	1,200
Direct labor hours per unit	2.00	2.50	3.00
Total direct labor hours	9,000	8,000	3,600
Machine hours per unit	0.05	0.08	0.09
Total machine run time (hours)	225	256	108
Number of production runs	12.00	10.00	8.00
Setup time per production run (machine hours)	2.00	1.00	2.50
Total setup time (machine hours)	24.00	10.00	20.00
Total machine hours	249	266	128
Indirect labor data
Setup time per run (hours)	3.00	4.00	6.00
Number of employees per setup	4	4	4
Indirect labor hours per setup	12.00	16.00	24.00

In order to meet anticipated demand for the upcoming month, Sigma Company plans to rent three machines, each costing $50,000 per month, and hire four indirect workers, each costing $4,810 per month. The total cost of the three machines and four indirect workers comprises the total overhead cost at Sigma Company.

Required

1. Given the production plan, what is the deluxe product's planned total contribution margin?
2. If Sigma Company computes a plantwide rate to allocate total overhead cost to the three products by dividing the sum of indirect labor cost and machine cost by planned total direct labor hours, what is the total overhead cost that will be allocated to the deluxe product, and what will be its resulting gross margin?
3. If Sigma Company uses TDABC to allocate the indirect labor cost and the machine cost to the three products, what will be the total overhead cost allocated to the deluxe product, and what will be its resulting gross margin?