Question
Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,530, and a new model, the Majestic, which sells for $1,270. The
Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,530, and a new model, the Majestic, which sells for $1,270. The production cost computed per unit under traditional costing for each model in 2017 was as follows.
Traditional Costing | Royale | Majestic | ||
Direct materials | $610 | $400 | ||
Direct labor ($20 per hour) | 120 | 100 | ||
Manufacturing overhead ($41 per DLH) | 246 | 205 | ||
Total per unit cost | $976 | $705 |
In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $41 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,165,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $554 ($1,530 $976) and Majestic $565 ($1,270 $705). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Schultzs controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017.
Activity Cost Pools | Cost Drivers | Estimated Overhead | Expected Use of Cost Drivers | Activity-Based Overhead Rate | ||||
Purchasing | Number of orders | $1,280,300 | 41,300 | $31/order | ||||
Machine setups | Number of setups | 942,300 | 17,450 | $54/setup | ||||
Machining | Machine hours | 5,185,800 | 120,600 | $43/hour | ||||
Quality control | Number of inspections | 756,600 | 29,100 | $26/inspection |
The cost drivers used for each product were:
Cost Drivers | Royale | Majestic | Total | |||
Purchase orders | 17,800 | 23,500 | 41,300 | |||
Machine setups | 4,650 | 12,800 | 17,450 | |||
Machine hours | 75,000 | 45,600 | 120,600 | |||
Inspections | 11,100 | 18,000 | 29,100 |
(a)
Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.)
Royale | Majestic | |||
Total assigned costs | $ | $ | ||
Cost per unit | $ | $ |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started