LO19-2, LO19-3, LO19-4, LO19-5 PROBLEM 19.2B Activity-Based Management and Target Costing Problem Set B Bitmore Company manufactures two products: BIT, which sells for $120; and MORE, which sells for $180. Estimated cost and production data for the current year are as follows. Direct materials cost Direct labor cost (@ $10/hr.) Estimated production (units) a. b. In addition, fixed manufacturing overhead is estimated to be $2,500,000 and variable overhead is estimated to equal $2.50 per direct labor hour. Bitmore desires a 12 percent return on sales for all of its products. BIT Instructions Calculate the target cost for both BIT and MORE. Estimate the total manufacturing cost per unit of each product if fixed overhead costs are assigned to products on the basis of estimated production in units. Which of the products is earning the desired return? Activity Machine set-ups Purchase orders $25 $20 30,000 Machining Inspection Shipping to customers. Total fixed overhead c. Recalculate the total manufacturing cost per unit if fixed overhead costs are assigned to prod- ucts on the basis of direct labor hours. Which of the products is earning the desired return? (Round to the nearest penny.) MORE d. Given the confusing results of parts b and c, Bitmore's production manager decides to per- form an activity analysis of fixed overhead. The results of the analysis are as follows. Costs $40 $50 10,000 Driver $ 350,000 # of set-ups 650,000 # of orders 500,000 # of machine-hours 300,000 # of batches 200,000 # of shipments $2,000,000 917 Demands BIT MORE 100 300 300 100 3,000 4,000 40 20 100 400 Estimate the total manufacturing cost per unit of each product if activity-based costing is used for assigning fixed overhead costs. Under this method, which product is earning the desired return? e. What proportion of fixed overhead is value-added? In attempting to reach the target cost for MORE, which activity would you look to improving first and why? f. Bitmore's production manager believes that design changes would reduce the number of set- ups required for MORE to 75. Fixed overhead costs for set-up would remain unchanged. What will be the impact of the design changes on the manufacturing costs of both products? Which of the products will earn the desired return? 883 An alternative to the design change is to purchase a new machine that will reduce the number of set-ups for BIT to 50 mnd the number of set-ups for MORE to 140. The machine also will reduce fixed set-up costs $275,500. Calculate the manufacturing costs for each product if the machine is purchased. Should MORE be redesigned or should the machine be purchased? Why?

In addition, fixed mansfactariag overthead is ectimated to be $2,500,000 and rariable ovethead is estimated to equal $250 per direct laber hour. Bitmore desires a 12 percent return en cales for all of its prodect: Instructions a. Calculate the target cout for both BrT and MORE. b. Estimate the fotal manufacturing cost per unit of each prodoct if fixed owerhead conss are axsigned to prodacts on the busis of estimated production in units. Which of the products is earning the desired return? c. Recalculane the total manufacturing cost per unit if fixed owerhead conts are assigned to pooducts ce the basis of direct labor bours. Which of the products is earning the desired return? (Round to the ncarest peniny.) d. Given the confuning results of parts b and c, Bitmose's poduction manaper dectides to perform an activity analyais of fixed overhead. The results of the analysis are as follows. Estimate the total manafacturing cost per unit of each product if activity hused costing is used for assigning fised overhead costs. Under this method, which product is earning the desired neturn? MORE, which activity would you look to improving firs and why? f. Bitmore's productice manager believes that desiga changes would redoce the number of setups required for MORE to 75. Fixed overthead costs for set-up would remain unchanged. What will be the impact of the design changes in the manufacturing costs of both products? Which of the prodacts will eara the desirod retarn? 917 Problem Set 8 8.83 2. An aliernative to the design change is to purchase a new machine thut will reduce the number machine is purchased. Should MORE be redesigned or should the machine be parchased? Why? Exercise 3: Giving the following information of a company a. Fill in the missing numbers b. Why did the company's gross profit margin increase? c. Why did the company's net profit margin decrease