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Kies Inc. manufactures only two products, Medium (42-inch) and Large (63-inch) plasma screen TVs. To generate adequate profit and cover its expenses throughout the
Kies Inc. manufactures only two products, Medium (42-inch) and Large (63-inch) plasma screen TVs. To generate adequate profit and cover its expenses throughout the value chain, Kies prices its TVs at 250% 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 follows: (Click the icon to view the data.) Currently, the company applies manufacturing overhead on the basis of direct labour hours. The company incurred $775,960 of MOH this year and 24,600 direct labour hours (8,700 direct labour hours making Medium TVs and 15,900 making Large TVs). The ABC team identified three primary production activities that generate MOH costs: (Click the icon to view the production activities.) Requirements Requirement 1. Use the company's current costing system to find the total cost of producing all Medium TVs and the total cost of producing all Large TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent. Begin by identifying the formula to compute the current plantwide manufacturing overhead rate, and then compute the rate. (Round your answer to the nearest cent.) Requirements Plantwide overhead rate - X 1. Use the company's current costing system to find the total cost of producing all Medium TVs and the total cost of producing all Large TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent. 2. Use ABC to find the total cost of producing all Medium TVs and the total cost of producing all Large TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent. 3. How much cost distortion was occurring between Kies's two products? Calculate the cost distortion in total and on a per unit basis. Could the cost distortion explain the CEO's confusion about pricing competition? Explain.
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