pls give me solution for this question with step by step explanation to understand the calculations. As this is an assignment which i had to submit with full calculations.

1 "A dollar of gross margin per briefcase? That's ridiculous!" roared Art Dejans, president of CarryAll, Inc. "Why do we go on producing those standard briefcases when we're able to make over $15 per unit on our specialty items? Maybe it's time to get out of the standard line and focus the whole plant on specialty work." 2 4 Dejans is referring to a summary of average unit costs and revenues that he had just received from the company's accounting department: 5 6 Standard Briefcases Speciality Briefcases =o ou AWN 40 52 38 35.5 7 Selling Price unit 8 Unit Product Cost 9 Gross Margin Per unit 10 2 16.5 CarryAll produces briefcases from leather, fabric, and synthetic materials in a single plant. The basic product is a standard briefcase made from leather lined with fabric. The standard briefcase is a high-quality item and has sold well for many years. Last year, the company decided to expand its product line and produce specialty briefcases for special orders. These briefcases differ from the standard in that they vary in size, contain the finest synthetic materials, and have the buyer's name embossed on them. To reduce labour costs on the specialty briefcases, most of the cutting and stitching is done by automated machines. These machines are used to a much lesser degree in the production of standard briefcases. 5-6 5-12 1 11 Ready A G H Carry All produces briefcases from leather, fabric, and synthetic materials in a single plant. The basic product is a standard briefcase made from leather lined with fabric. The standard 12 briefcase is a high-quality item and has sold well for many years. 13 Last year, the company decided to expand its product line and produce specialty briefcases for special orders. These briefcases differ from the standard in that they vary in size, contain the finest synthetic materials, and have the buyer's name embossed on them. To reduce labour costs on the specialty briefcases, most of the cutting and stitching is done by automated machines. These machines are used to a much lesser degree in the production of standard briefcases. 15 Tagree that the specialty business is looking better and better," replied Sally Henrie, the company's marketing manager. "And there seems to be plenty of speciality work out there. particularly since the competition hasn't been able to touch our price. Did you know that Armour Company, our biggest competitor, charges over $65 a unit for its specialty items? Now that's what I call gouging the customer!" 16 A breakdown of the manufacturing cost for each of CarryAll's product lines follows: 17 Standard Briefcases Specialaity Briefcases 18 Units produced each month 10000 3000 19 Direct Materials 20 Leather 1.0 square meter 15 0.5 square meter 7.5 21 Fabric 1.0 square meter 5 5 22 Synthetic 0 S 23 Total Materials 20 17.5 24 Direct Labour 0.5h @ $16 18 0.5h @ $16 8 25 Manufacturing overhead 10.Sh @ $20 10 0.5h @ $20 10 26 27 Unit Product Cost 38 35.5 512 9 Manufacturing overhead is applied to products on the basis of direct labour-hours. The rate of $20 per direct labour-hour is determined by dividing the total manufacturing overhead 30 cost for a month by the direct labour-hours: 31 32 The following additional information is available about the company and its products. Standard briefcases are produced in batches of 200 units, and specialty briefcases are produced in batches of 25 units. Thus, the company performs 170 setups each month (50 setups for the standard items and 120 setups for the specialty items). A setup for the standard items requires one hour, whereas a setup for the specialty items requires two hours. All briefcases are inspected to ensure that quality standards are met. A total of 300 hours of inspection time is spent on the standard briefcases and 500 hours of inspection time is spent on the specialty briefcases each month. A standard briefcase requires 0.5 hours of machine time, and a specialty briefcase requires 2.5 hours of machine time. The company is considering using ABC as an alternative to its traditional costing system for computing unit product costs. Since these unit product costs will be used for external financial reporting, all manufacturing overhead costs are to be allocated to products, and nonmanufacturing costs are to be excluded from product costs. The ABC system has already been designed and costs allocated to the activity cost pools. The activity cost pools and activity measures follow 33 34 35 34 35 36 Activity pool cost Activity Measure Estimated Overhead Cost 37 Purchasing Number of orders 10500 38 Material Handling Number of reciepts 22500 39 Prduction orders and setup setup hours 29000 40 Inspection Inspection hours 20000 41 Frame assembly Assembly hours 13000 42 Machine related Machine hours 35000 43 130000 Expected Activity Standard Briefcases Speciality briefcase Total 24 46 70 51 79 130 0 100 100 Activity Measure No of orders Leather Fabric Synthetic material 1 2 Number of receipts 3 Leather 4 Fabric 5 Synthetic material -6 Setup hours 57 Inspection hours 58 Assebly hours 59 Machine hours 46 14 60 70 10 80 0 160 160 ?? ? ? ? ? ? 650 650 1300 ? ? ? 50 61 Required: 62 60 61 Required: 62 63 Using ABC, determine the amount of manufacturing overhead cost that would be applied to each standard briefcase and each specialty briefcase. 64 Using the data computed in Requirement (1) and other data from the case as needed, determine the unit product cost of each product line from the perspective of the ABC system. Within the limitations of the data that have been provided, evaluate the president's concern about the profitability of the two product lines. Would you recommend that the company shift its resources entirely to production of specialty briefcases? Explain. 65 66 Henrie stated that "the competition hasn't been able to touch our price on specialty business. What do you think is the reason? 67 68 69 70 71