Michael Corporation manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company's sales.The first of these boards, a television (TV) circuit board, has been a standard in the industry for several years.The market for this type of board is competitive and, therefore, price sensitive.Michael plans to sell 65,000 of the TV circuit boards in 2020 at a price of P150 per unit.The second high-volume product, a personal computer (PC) circuit board, is a recent addition to Michael's product line.Because the PC board incorporates the latest technology, it can be sold at a premium price, the 2020 plans include the sale of 40,000 PC boards at P300 per unit.

Michael's management group is meeting to discuss strategies for 2020, and the current topic of conversion is how to spend the sales and promotion pesos for next year.The sales manager believes that the market share for the TV board could be expanded by concentrating Michael's promotional efforts in this area.In response to this suggestion, the production manager said, "Why don't you go after a bigger market for the PC board?The cost sheets that I get show that the contribution from the PC board is more than double the contribution from the TV board.I know we get a premium price for the PC board; selling it should help overall profitability".

Michael uses a standard cost system and the following data apply to the TV and PC boards

TV BoardPC Board

Direct materialP80P140

Direct labor1.5 hours4 hours

Machine time0.5 hours1.5 hours

Variable factory overhead is applied on the basis of direct labor hours.For 2020, variable factory overhead is budgeted at P1,120,000, and direct labor hours are estimated at 280,000.The hourly rates for machine time and direct labor are P10 and P14, respectively.Michael applies a material handling charge at 10 percent of material cost; this material handling charge is not included in variable factory overhead.Total 2020 expenditures for materials are budgeted at P10,600,000.

Ed Welch, Michael's controller, believes that before the management group proceeds with the discussion about allocated sales and promotional pesos to individual products, it might be worthwhile to look at these products on the basis of the activities involved in their production.As he explained to the group, "Activity-based costing integrates the cost of all activities, known as costdrivers, into individual product costs rather than including thesecosts in overhead pools".Welch has prepared the following schedule to help the management group understand this concept.

Annual Activity

Budgeted CostCost Driverfor Cost Driver

Material overhead:

ProcurementP400,000Number of parts 4,000,000 parts

Production scheduling220,000Number of boards 110,000 boards

Packaging and shipping440,000Number of boards 110,000 boards

P1,060,000

Variable overhead:

Machine setupP446,000Number of setups 278,750 setups

Hazardous waste disposal48,000Pounds of waste 16,000 pounds

Quality control560,000Number of inspections 160,000 inspections

General supplies66,000Number of boards 110,000 boards

P1,200,000

Annual Activity

Budgeted CostCost Driverfor Cost Driver

Manufacturing:

Machine insertionP1,200,000Number of parts 3,000,000 parts

Manual insertion4,000,000Number of parts 1,000,000 parts

Wave soldering132,000Number of boards 110,000 boards

P5,332,000

REQUIRED PER UNIT

TV BoardPC Board

Parts2555

Machine insertions of parts2435

Manual insertions of parts120

Machine setups23

Hazardous waste0.02 lb.0.35 lb.

Inspections12

"Using this information", Welch explained, "we can calculate an activity-based cost for each TV board and each PC board and then compare it to the standard cost we have been using.The only cost that remains the same for both cost methods is the cost of direct materials.The cost drivers will replace the direct labor, machine time, and overhead costs in the standard cost".

REQUIRED:

1.On the basis of standard costs, calculate the total contribution expected in 2020 for Michael Corporation's TV Board.

2.On the basis of standard costs, calculate the total contribution expected in 2020 for Michael Corporation's PC Board.

3.On the basis of activity based costing, calculate the total contribution expected in 2020 for Michael Corporation's TV Board.

4.On the basis of activity based costing, calculate the total contribution expected in 2020 for Michael Corporation's PC Board.