Q1
Lucky Company Ltd. (Lucky") produces two types of solar panels: Thin-Film and Concentrated PV Cell (CVP). The assignment basis for support costs has been direct labour hours. For 2020, Lucky compiled the following data for the two products: Thin-Film CVP Sales units 10,000 60,000 Sales price per unit $ 52,000.00 $ 38,000.00 Direct material and direct labour costs per unit $ 14,400.00 $ 10,400.00 Manufacturing overheads per unit $ 7,200.00 $ 9,600.00 Last year, Lucky purchased an expensive robotics system to allow for more complex products in the Thin-Film line. The CFO suggested that an activity-based costing (ABC) analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. He obtained the following ABC information for 2021: Activity Setups Machine-related Packing Cost Driver Cost No. of setups $ 5,850,000 No. of machine hours $275,400,000 No. of shipments $ 47,250,000 Thin-Film 1,200 900,000 150,000 CVP 300 900,000 600,000 Required: (a) Estimate the gross margin per unit for each type of panel? (4 marks) (b) Explain why the estimated manufacturing overhead per unit are less for the Thin-Film panel ($7,200 per unit) than the CVP panel ($9,600 per unit). (2 marks) (c) (i) Explain the reason(s) for high machine-related costs. (2 marks) (ii) Explain what the appropriate base for allocating the costs of Machine-related activity would be. (3 marks) (d) Using the ABC data presented above, compute the cost driver rate for each support activity. (3 marks) (ii) compute the revised manufacturing overhead per unit for the Thin-Film panel. (3 marks) (iii) compute the revised total cost to manufacture one unit of the Thin-Film panel. (2 marks) Is the Thin-Film panel as profitable as the original data estimated? Explain. (2 marks) What considerations need to be examined when determining a sales mix strategy? (4 marks) Lucky Company Ltd. (Lucky") produces two types of solar panels: Thin-Film and Concentrated PV Cell (CVP). The assignment basis for support costs has been direct labour hours. For 2020, Lucky compiled the following data for the two products: Thin-Film CVP Sales units 10,000 60,000 Sales price per unit $ 52,000.00 $ 38,000.00 Direct material and direct labour costs per unit $ 14,400.00 $ 10,400.00 Manufacturing overheads per unit $ 7,200.00 $ 9,600.00 Last year, Lucky purchased an expensive robotics system to allow for more complex products in the Thin-Film line. The CFO suggested that an activity-based costing (ABC) analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. He obtained the following ABC information for 2021: Activity Setups Machine-related Packing Cost Driver Cost No. of setups $ 5,850,000 No. of machine hours $275,400,000 No. of shipments $ 47,250,000 Thin-Film 1,200 900,000 150,000 CVP 300 900,000 600,000 Required: (a) Estimate the gross margin per unit for each type of panel? (4 marks) (b) Explain why the estimated manufacturing overhead per unit are less for the Thin-Film panel ($7,200 per unit) than the CVP panel ($9,600 per unit). (2 marks) (c) (i) Explain the reason(s) for high machine-related costs. (2 marks) (ii) Explain what the appropriate base for allocating the costs of Machine-related activity would be. (3 marks) (d) Using the ABC data presented above, compute the cost driver rate for each support activity. (3 marks) (ii) compute the revised manufacturing overhead per unit for the Thin-Film panel. (3 marks) (iii) compute the revised total cost to manufacture one unit of the Thin-Film panel. (2 marks) Is the Thin-Film panel as profitable as the original data estimated? Explain. (2 marks) What considerations need to be examined when determining a sales mix strategy? (4 marks)
