You are a consultant...

You are a Consultant for the professional service firm, BUSI 2083 LLP. Yourrm specializes in providing a wide variety of internal business solutions for different clients. It is your rst day on thejob and a Manager asks you for some help with a client in the aerospace sector. Eager to please on your rst day, you head over to Galaxy Incorporated and sit down with the Executive Vice President to obtain more information. \"That R2D2 model is such a stinker! I think it's time to cut back its production and shift our resources toward the new BB8 model," saidJustin Medakiewicz, Executive VP of Galaxy Incorporated. "Take a look at this Income Statement I've received from accounting. The BBS is generating over eight times as much profit as the R2D2 on one-sixth of the unit sales. I'm convinced that we should focus on the BBB going fonNard." The year-end statement whichjustin was referring to is shown below. Model Total R2 D2 338 Sales $11,125,000 $9,000,000 $2,125,000 Cost of Goods Sold 6,900,000 5,490,000 1,410,000 Gross Margin 4,225,000 3,510,000 715,000 Less: Selling and Administrative 3,675,000 3,450,000 225,000 Expenses Operating Income $550,000 $60,000 $490,000 Number of Units Produced and Sold 30,000 5,000 "The numbers sure look that way," replied Melissa Montoro, the company's sales manager. "But why isn't the competition interested in replicating the BBB? I know we've been producing the model for only three years, but I'm surprised that more of our competitors haven't recognized what a cash cow it is." "I think it's our new automated plant," repliedJustin. "Now it takes only two direct labour hours to produce a unit ofthe R2D2 and three direct labour hours to produce a unit of the BBB, That's considerably less than it used to take us." "I agree that automation is very benecial," replied Melissa. \"I suppose that's how we're able to hold down the price of the BBS. Trekkie Corporation in the UK tried to bring out a 888 but discovered they couldn't come close to matching our price. But Trekkie is killing us on the R2D2 by undercutting our price with some of our best customers, I suppose they'll pick up all of our R2D2 business if we move out ofthat market, But who cares? We don't even have to advertise the BBB; itjust seems to sell itself." "My only concern about automation is how our manufacturing overhead rate has shot up," said Justin. \"Ourtotal manufacturing overhead cost is $2,700,000. That comes out to be a hefty amount per direct labour hour, but Timothy down in accounting has been using direct labour hours as the $2,700,000. That comes out to be a hefty amount per direct labour hour, but Timothy down in accounting has been using direct labour hours as the base for computing overhead rates for years and doesn't want to change. I don't suppose it matters as long as costs get assigned to products." "I've never understood that debit and credit stuff," replied Melissa, "But I think you've got a problem in production. I had lunch with Lily yesterday and she complained about how complex the BB8 is to produce. Apparently they have to do a lot of setups, special soldering, and other work on the BBB just to keep production moving. And they have to inspect every single unit." "It'll have to wait," saidJustin' \"I'm writing a proposal to the board of directors to phase out the R2D2. We've got to increase our bottom line or we'll all be looking for jobs." Compute the predetermined overhead rate based on direct labour hours that the company used during the year. (There was no underapplied or overapplied overhead for the year.) Direct materials and direct labour costs per unit for the two products are as follows: R2 D2 BBS Direct Materials $75 $120 Direct Labor $36 $54 Using these data and the rate computed in (1) above, determine the unit product cost of each product under the company's traditional costing system. Assume that the company's $2,700,000 in manufacturing overhead cost can be assigned to six activity cost pools as follows: Using these data and the rate computed in (1) above, determine the unit product cost of each product under the company's traditional costing system. Assume that the company's $2,700,000 in manufacturing overhead cost can be assigned to six activity cost pools as follows: Expected Activity Activity Cost Pool Estimated Overhead Costs Total R2D2 BB8 Machine setups (number of $ 312,000 $ 1,600 1,000 600 setups) Quality control (number of 540,000 9,000 4,000 5,000 inspections) Purchase orders (number of 135,000 1,200 840 360 orders) Soldering (number of solder 675,000 200,000 60,000 140,000 joints) Shipments (number of 198,000 600 400 200 shipments) Machine-related (machine- 840,000 70,000 30,000 40,000 hours) $2,700,000 Given these data, would you support a recommendation to expand sales of the BBB? Explain your position. From the data you prepared in (3) above, why do you suppose the BB8 "just seems to sell itself'? Ifyou were president of Galaxy Incorporated, what strategy would you follow from this point forward to improve the company's overall prots? How might Galaxy Incorporated find the ABC information helpful in managing its business