Supreme Company (Supreme) produces two types of fans: Deluxe and Standard. It adopts traditional overhead allocation method to allocate manufacturing overhead costs, using direct labor dollars as cost allocation basis. In 2020, Supreme compiled the following data for the two products: Deluxe Standard Sales units 50,000 400,000 Sales price per unit $650.00 $475.00 Direct material and direct labor costs per unit $180.00 $130.00 Manufacturing overhead costs per unit $ 80.00 $120.00 Last year, Supreme purchased an expensive artificial intelligence system to allow automation for more decorative fan products in the deluxe product line. The CFO suggested that an activity-based costing analysis (ABC) could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information for 2020: Activity Cost Driver Cost Total Deluxe Standard Setups Number of setups $ 500,000 5,000 4,000 1,000 Machine-related Number of machine hours $24,000,000 600,000 300,000 300,000 Packing Number of shipments $ 5,000,000 250,000 50,000 200,000 Required: a. Using the traditional overhead allocation method, what is the estimated total cost of manufacturing one unit for each type of fan? (1 mark) b. Using the traditional overhead allocation method, estimated manufacturing overhead costs per unit are less for the deluxe fan ($80 per unit) than the standard fan ($120 per unit). Suggest one possible reason for this. (2 marks) c. Regarding the machine-related costs, suggest one possible reason why the machine-related costs is so high. What might explain why total machining hours for the deluxe fans (300,000 hours) are the same as for the standard fans (300,000 hours)? (2 marks) d. Using the activity-based costing data presented above, 1. compute the cost-driver rate for each overhead activity. (6 marks) 2. compute the revised manufacturing overhead cost per unit for each type of fan. (4 marks)Supreme Company (Supreme) produces two types of fans: Deluxe and Standard. It adopts traditional overhead allocation method to allocate manufacturing overhead costs, using direct labor dollars as cost allocation basis. In 2020, Supreme compiled the following data for the two products: Deluxe Standard Sales units 50,000 400,000 Sales price per unit $650.00 $475.00 Direct material and direct labor costs per unit $180.00 $130.00 Manufacturing overhead costs per unit $ 80.00 $120.00 Last year, Supreme purchased an expensive artificial intelligence system to allow automation for more decorative fan products in the deluxe product line. The CFO suggested that an activity-based costing analysis (ABC) could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information for 2020: Activity Cost Driver Cost Total Deluxe Standard Setups Number of setups $ 500,000 5,000 4,000 1,000 Machine-related Number of machine hours $24,000,000 600,000 300,000 300,000 Packing Number of shipments $ 5,000,000 250,000 50,000 200,000 Required: a. Using the traditional overhead allocation method, what is the estimated total cost of manufacturing one unit for each type of fan? (1 mark) b. Using the traditional overhead allocation method, estimated manufacturing overhead costs per unit are less for the deluxe fan ($80 per unit) than the standard fan ($120 per unit). Suggest one possible reason for this. (2 marks) c. Regarding the machine-related costs, suggest one possible reason why the machine-related costs is so high. What might explain why total machining hours for the deluxe fans (300,000 hours) are the same as for the standard fans (300,000 hours)? (2 marks) d. Using the activity-based costing data presented above, 1. compute the cost-driver rate for each overhead activity. (6 marks) 2. compute the revised manufacturing overhead cost per unit for each type of fan. (4 marks)
