Problem 5-46 Activity-Based Costing; Cost Analysis (LO 5-1, 5-2,5-4,5-5, 5-7) Ontario, Inc., manufactures two products, Standard and Enhanced, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period are $800,000 and 25,000 hours, respectively. Information about the company's products follows Standard: Estimated production volume, 3,000 units Direct-material cost, $25 per unit Direct labor per unit, 3 hours at $12 per hour Enhanced: Estimated production volume, 4.000 units Direct-material cost, 540 per unit Direct labor per unit, 4 hours at 512 per hour Ontario's overhead of $800.000 can be identified with three major activities: order processing ($150,000), machine processing (5560,000), and product inspection ($90,000). These activities are driven by number of orders processed, machine hours worked, and Inspection hours, respectively. Data relevant to these activities follow Machine Orders Processed Inspection Hours 2.000 Standard Enhanced Total Worked 18,000 22,000 40,000 Top management is very concerned about declining profitability despite a healthy increase in sales volume The decrease in income is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed-machinery that was expected to produce significant operating efficiencies Required: 1. Assuming use of direct labor hours to apply overhead to production, compute the unit manufacturing costs of the Standard Enhanced products of the expected manufacturing volume is attained Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in in especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed-machinery that was expected to produce significant operating efficiencies. Required: 1. Assuming use of direct labor hours to apply overhead to production, compute the unit manufacturing costs of the Standard and Enhanced products if the expected manufacturing volume is attained. 2. Assuming use of activity-based costing, compute the unit manufacturing costs of the Standard and Enhanced products if the expected manufacturing volume is attained 3. Ontario's selling prices are based heavily on cost. a. By using direct-labor hours as an application base, which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each product b. Is it possible that overcosting and undercosting (ie, cost distortion) and the subsequent determination of selling prices are contributing to the company's profit woes? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Reg 1 Reg2 Reg 3A Reg 38 Assuming use of activity based costing, compute the unit manufacturing costs of the Standard and Enhanced products if the expected manufacturing volume is attained Standard 96 Enhanced S Manufacturing cost per una 1280
