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11C5.57 Canadian Motorcycle Company (CMC) produces two models of motorcycles: Faster and Slower. The company has five categories of overhead costs: purchasing, receiving, machine operating, handling, and shipping. Each category represents the following percentages of total overhead costs, which amount to $ 4 million: Purchasing 25.0% Handling 10.0% Receiving 12.5% Shipping 15.0% Machine operating 37.5% Current capacity is 200,000 machine hours, and the current production uses 100% of the available hours. The sales mix is 45% Faster and 55% Slower. The overhead costs are applied to each model based on machine hours. The production costs for each model of motorcycle and other relevant information are as follows: Faster Slower Direct materials per unit $8,000 $6,500 Direct labour per unit $1,750 $1,850 Applied overhead ? ? Number of units produced 400 500 Number of purchases 5 Number of shipments received 3 3 Percentage of machine hours consumed by each product 50% 50% Number of moves in handling 75 Number of kilometres to ship to customers 4,000 4,250 Instructions a. CMC determines its prices by adding 40% to the cost of direct materials and direct labour. Determine if this pricing policy is appropriate. Show all calculations to support your answer. b. Use an activity-based approach to determine whether CMC can make a profit if it sells the Faster model for $15,000. Show all supporting calculations. (Round all answers to the nearest dollar.) 4 100 11C5.57 Canadian Motorcycle Company (CMC) produces two models of motorcycles: Faster and Slower. The company has five categories of overhead costs: purchasing, receiving, machine operating, handling, and shipping. Each category represents the following percentages of total overhead costs, which amount to $ 4 million: Purchasing 25.0% Handling 10.0% Receiving 12.5% Shipping 15.0% Machine operating 37.5% Current capacity is 200,000 machine hours, and the current production uses 100% of the available hours. The sales mix is 45% Faster and 55% Slower. The overhead costs are applied to each model based on machine hours. The production costs for each model of motorcycle and other relevant information are as follows: Faster Slower Direct materials per unit $8,000 $6,500 Direct labour per unit $1,750 $1,850 Applied overhead ? ? Number of units produced 400 500 Number of purchases 5 Number of shipments received 3 3 Percentage of machine hours consumed by each product 50% 50% Number of moves in handling 75 Number of kilometres to ship to customers 4,000 4,250 Instructions a. CMC determines its prices by adding 40% to the cost of direct materials and direct labour. Determine if this pricing policy is appropriate. Show all calculations to support your answer. b. Use an activity-based approach to determine whether CMC can make a profit if it sells the Faster model for $15,000. Show all supporting calculations. (Round all answers to the nearest dollar.) 4 100
