Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ultratech, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the companys sales. The first

Ultratech, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the companys sales. The first of these boards, a television circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and price-sensitive. Ultratech plans to sell 79,000 of the TV boards in 20x4 at a price of $450 per unit. The second high-volume product, a personal computer circuit board, is a recent addition to Ultratechs product line. Because the PC board incorporates the latest technology, it can be sold at a premium price. The 20x4 plans include the sale of 54,000 PC boards at $785 per unit.

Ultratechs management group is meeting to discuss how to spend the sales and promotion dollars for 20x4. The sales manager believes that the market share for the TV board could be expanded by concentrating Ultratechs promotional efforts in this area. In response to this suggestion, the production manager said, Why dont you go after a bigger market for the PC board? The cost sheets that I get show that the contribution from the PC board is more than double the contribution from the TV board. I know we get a premium price for the PC board. Selling it should help overall profitability.

The cost-accounting system shows that the following costs apply to the PC and TV boards.

PC Board

TV Board

Direct material

$

243

$

153

Direct labor

3.5

hr.

1.5

hr.

Machine time

1.5

hr.

1.5

hr.

Variable manufacturing overhead is applied on the basis of direct-labor hours. For 20x4, variable overhead is budgeted at $26,469,450, and direct-labor hours are estimated at 322,875. The hourly rates for machine time and direct labor are $26 and $34, respectively. The company applies a material-handling charge at 10 percent of material cost. This material-handling charge is not included in variable manufacturing overhead. Total 20x4 expenditures for direct material are budgeted at $25,209,000.

Andrew Fulton, Ultratechs controller, believes that before the management group proceeds with the discussion about allocating sales and promotional dollars to individual products, it might be worthwhile to look at these products on the basis of the activities involved in their production. Fulton has prepared the following schedule to help the management group understand this concept.

Using this information, Fulton explained, we can calculate an activity-based cost for each TV board and each PC board and then compare it to the standard cost we have been using. The only cost that remains the same for both cost methods is the cost of direct material. The cost drivers will replace the direct labor, machine time, and overhead costs in the old standard cost figures.

Budgeted Cost

Cost Driver

Budgeted Annual Activity for Cost Driver

Procurement

$

940,000

Number of parts

8,024,100 parts

Production scheduling

510,000

Number of boards

139,650 boards

Packaging and shipping

1,020,000

Number of boards

139,650 boards

Total

$

2,470,000

Machine setup

$

948,000

Number of setups

615,300 setups

Hazardous waste disposal

124,000

Pounds of waste

50,337 pounds

Quality control

1,204,000

Number of inspections

475,650 inspections

General supplies

174,000

Number of boards

139,650 boards

Total

$

2,450,000

Machine insertion

$

3,100,000

Number of parts

5,658,000 parts

Manual insertion

9,400,000

Number of parts

2,256,000 parts

Wave-soldering

334,000

Number of boards

139,650 boards

Total

$

12,834,000

Required per unit

PC Board

TV Board

Parts:

83

40

Machine insertions

50

39

Manual insertions

33

1

Machine setups

5

4

Hazardous waste disposal

.80

lb.

.06

lb.

Inspections

4

3

2.

On the basis of Ultratechs unit cost data given in the problem, calculate the total amount that each of the two product lines will contribute toward covering fixed costs and profit in 20x4. (Round your intermediate calculations to 2 decimal places.)

PC Board

TV Board

Total Contribution Margin

3.

Using activity-based costing, calculate the total amount that each of the two product lines will contribute toward covering fixed costs and profit in 20x4. (Round your intermediate calculations to 2 decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Michael J. Jones

2nd Edition

1119977150, 978-1119977155

More Books

Students also viewed these Accounting questions

Question

What are the advantages and disadvantages of an MBO program?

Answered: 1 week ago