Question
Oven coffee fan Annual sales (units) 80000 4000 4000 Direct materials cost per unit 25 45 85 Direct labor cost per unit 15 30 30
Oven | coffee | fan | |
Annual sales (units) | 80000 | 4000 | 4000 |
Direct materials cost per unit | 25 | 45 | 85 |
Direct labor cost per unit | 15 | 30 | 30 |
Direct labor hours (DLH) per unit | 1 | 2 | 2 |
The company has budgeted its annual indirect costs to be $8,736,000. For the past 5 years, the companys pricing formula has been to set each appliances target price at 125% of its unit product cost. Recently, however, the microwave oven has come under increasing price pressure from competitors. The result was that the price of the microwave oven has been lowered to $110.
1.a. Calculate the per unit product cost for each appliance, based on the current job-order costing system.
b. Calculate the new per unit product cost for each appliance, based on the new data collected by Patty, using an activity-based costing system.
c. Compare the new per unit product cost (from the activity-based costing system) with the current per unit product cost (from the job-order costing system) for each appliance.
d. Calculate the target selling price per unit for each appliance, based on the current job-order costing system.
e. Calculate the new target selling price per unit for each appliance, based on the activity-based costing system. f. Compare the new target selling price per unit (from the activity-based costing system) with the current target selling price per unit (from the job-order costing system) for each appliance
Cost Driver | Oven | Coffee | Fan | ||
Machine maintenance and depreciation | 3605000 | Machine hours (MH) | 39480 | 31584 | 60536 |
Engineering and product repair | 1860000 | Engineering hours (EH) | 27040 | 9464 | 31096 |
Material purchasing, receiving, and handling | 1705000 | Number of material orders (orders) | 5328 | 2812 | 6660 |
Miscellaneous manufacturing overhead | 1566000 | Square feet of factory space (Sq. ft.) | 19,206 | 24444 | 43650 |
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