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Somany Ceramics is a manufacturing business which makes a product in two models: Model S1 and model S2. Details of the two products are as
Somany Ceramics is a manufacturing business which makes a product in two models: Model S1 and model S2. Details of the two products are as follows: Particulars Model S1 Annual sales | 10,000 units Number of sales orders 200 Sales price per unit $66.00 Direct material cost per unit $11.00 Direct labour hours per unit 5 Direct labour rate per hour $10.00 Special parts per unit 15 Production batch size 2,000 Set-ups per batch | 5 Model S2 9,000 units 75 $65.00 $11.00 2.5 $10.00 100 13 Other relevant information is as follows: Particulars Setup costs Material handling costs Special part handling costs Invoicing Other overheads Amount ($) Cost driver 86,000 Number of setups 55,000 Number of batches 50,400 Number of special parts 31,625 Number of sales orders 109.000 Direct labour hours A customer has indicated an interest in placing a large order for either model S1 or S2 and the sales manager wished to try to sell the higher priced model S1. Required: Question 1: (a) Calculate the profit per unit for each model using activity-based costing. (b) Identify which product the sales manager should try to sell based on the information provided by your analysis. If there is a loss-making product, then advise the relevant information that the management needs to consider in taking any decision in relation to the loss making product
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