Please help to answer Requirement 3 in detail.

Options:

Undercosted/Overcosted

$#, Lower/Higher

Peters Inc. manufactures only two products, Medium (42-inch) and Large (63-inch) plasma screen TVs. To generate adequate profit and cover its expenses throughout the value chain, Peters prices its TVs at 250% of manufacturing cost. The company is concemed because the Large model is facing severe pricing competition, whereas the Medium model is the low-price leader in the market. The CEO questions whether the cost numbers generated by the accounting system are correct. He has just learned about ABC and wants to reanalyze this past year's product costs using an ABC systern. Information about the company's products this past year follows: (Click the icon to view the data.) Currently, the company applies manufacturing overhead on the basis of direct labour hours. The company incurred $996,260 of MOH this year and 25,000 direct labour hours (8.900 direct labour hours making Medium TVs and 16,100 making Large TVs). The ABC team identified three primary production activities that generate MOH costs: (Click the icon to view the production activities.) Requirements Requirement 1. Use the company's current costing system to find the total cost of producing all Medium TVs and the total cost of producing all Large TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent. Begin by identifying the formula to compute the current plantwide manufacturing overhead rate, and then compute the rate. (Round your answer to the nearest cent.) Total manufacturing overhead Total direct labour hours Plantwide overhead rate 996.260 25,000 $ 39.85 Now use this rate to allocate the overhead to each model, and then calculate the average cost of making each unit of each model. (Round cost per unit to the nearest cent.) Manufacturing cost Medium Large Direct materials S 664,000 $ 1.240,000 Direct labour 223,000 386,000 354,665 641,585 Manufacturing overhead Total manufacturing cost $ 1,241,665 $ 2,267,585 Number of units produced 3,200 4,100 388.02 S 553.07 Cost per unit Requirement 2. Use ABC to find the total cost of producing all Medium TVs and the total cost of producing all Large TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent. Begin by identifying the formula to compute the activity cost allocation rates, and then calculate the activity cost allocation rates. (Round your answers to the nearest cent.) Total activity allocation base Activity overhead 157,440 $ 1 640 Materials handling Machine processing Packaging Activity allocation rate $ 246.00 / mat, orders handled = $ 13.50 / machine hour = $ 8.20 / packaging hour $ / 56,000 756,000 82.820 $ 10,100 Now use these rates to allocate the overhead to each model, and then calculate the average cost of making each unit of each model. (Round interim answers to the nearest dollar and final answers to the nearest cent.) Manufacturing Cost Medium Large 1,240,000 Direct materials $ 664,000 $ 223,000 Direct labour 386,000 504,720 491,540 Manufacturing overhead Total manufacturing cost $ 1,391,720 $ 3,200 2,117,540 4,100 Number of units produced $ 434.91 $ 516.47 Cost per unit Requirement 3. How much cost distortion was occurring between Peters's two products? Calculate the cost distortion in total and on a per unit basis. Could the cost distortion explain the CEO's confusion about pricing competition? Explain. (Round interim and final answers to the nearest cent. Use parentheses or a minus sign for undercosted and negative cost distortion amounts.) Medium Large Cost per unit using current system $ 388.02 $ 553.07 434.91 516.47 Cost per unit using ABC Overcosting/(Undercosting) Number of units $ 36.60 (46.89) $ 3,200 4,100 $ (150,048.00) $ 150,060.00 Total cost distortion Could the cost distortion explain the CEO's confusion about pricing competition? Explain. (Round your answers to the nearest cent.) The Medium units had been undercosted and the Large units had been overcosted Since Peters's sets its sales price at 250% of manufacturing cost, the resulting sales price should have been about $3479300 lower units and about $ 5293850 higher for the Large units. for the Medium Data X Medium (42-inch) Plasma TVs: Total direct material cost: $664,000 Total direct labour cost: $223,000 Production volume: 3,200 units Large (63-inch) Plasma TVs: Total direct material cost: $1,240,000 Total direct labour cost: $386,000 Production volume: 4,100 units Print Done Production activities X The company's manufacturing overhead numbers are as follows: Materials Handling ($157,440); driven by number of material orders handled Machine Processing ($756,000); driven by machine hours Packaging ($82,820); driven by packaging hours The company's only two products required the following activity levels during the year: Material Orders Machine Packaging Handled Hours Hours Medium 27,000 3,900 Large.. 200 29,000 6,200 440 Print Done X Requirements 1. Use the company's current costing system to find the total cost of producing all Medium TVs and the total cost of producing all Large TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent. 2. Use ABC to find the total cost of producing all Medium TVs and the total cost of producing all Large TVs. What was the average cost of making each unit of each model? Round your answers to the nearest cent 3. How much cost distortion was occurring between Peters's two products? Calculate the cost distortion in total and on a per unit basis. Could the cost distortion explain the CEO's confusion about pricing competition? Explain. Print Done