Question
Stuart Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Stuart uses an activity-based costing
Stuart Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Stuart uses an activity-based costing system. The following are the relevant cost data for the previous month:
Direct Cost per Unit | Model ZM | Model DS | ||||
Direct materials | $ | 20.4 | $ | 9.0 | ||
Direct labor | 28.8 | 11.0 | ||||
Category | Estimated Cost | Cost Driver | Use of Cost Driver | ||||
Unit level | $ | 24,990 | Number of units | ZM: 2,450 units; DS: 9,450 units | |||
Batch level | 44,640 | Number of setups | ZM: 24 setups; DS: 24 setups | ||||
Product level | 88,750 | Number of TV commercials | ZM: 13; DS: 12 | ||||
Facility level | 228,000 | Number of machine hours | ZM: 400 hours; DS: 800 hours | ||||
Total | $ | 386,380 | |||||
Stuarts facility has the capacity to operate 3,600 machine hours per month.
Required
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Compute the cost per unit for each product.
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The current market price for products comparable to Model ZM is $121 and for DS is $89. If Stuart sold all of its products at the market prices, what was its profit or loss for the previous month?
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A market expert believes that Stuart can sell as many cameras as it can produce by pricing Model ZM at $116 and Model DS at $40. Stuart would like to use those estimates as its target prices and have a profit margin of 30 percent of target prices. What is the target cost for each product?
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