Question
Perez Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Perez uses an activity-based costing
Perez Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Perez uses an activity-based costing system. The following are the relevant cost data for the previous month:
Direct Cost per Unit | Model ZM | Model DS | ||||
Direct materials | $ | 20.0 | $ | 9.0 | ||
Direct labor | 28.0 | 11.0 | ||||
Category | Estimated Cost | Cost Driver | Use of Cost Driver | ||||
Unit level | $ | 24,990 | Number of units | ZM: 2,400 units; DS: 9,500 units | |||
Batch level | 48,000 | Number of setups | ZM: 24 setups; DS: 24 setups | ||||
Product level | 88,750 | Number of TV commercials | ZM: 13; DS: 12 | ||||
Facility level | 228,000 | Number of machine hours | ZM: 400 hours; DS: 800 hours | ||||
Total | $ | 389,740 | |||||
Perezs facility has the capacity to operate 3,600 machine hours per month.
Required
1A) Compute the cost per unit for each product.
1B) The current market price for products comparable to Model ZM is $121 and for DS is $85. If Perez sold all of its products at the market prices, what was its profit or loss for the previous month?
1C) A market expert believes that Perez can sell as many cameras as it can produce by pricing Model ZM at $116 and Model DS at $40. Perez would like to use those estimates as its target prices and have a profit margin of 30 percent of target prices. What is the target cost for each product?
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