P4-2A Schultz Electronics manufactures two large-screen television models: the Royale which sells for$1,600 and a new model, the Majestic, which sells for$1,300 The production cost computed per unit under traditional costing for each model is 2014 was as follows.<\/p>\n
Traditional Costing<\/b><\/p>\n
Royale<\/b><\/p>\n
Majestic<\/b><\/p>\n
Direct materials<\/p>\n
$700<\/p>\n
$420<\/p>\n
Direct labor ($20 per hour)<\/p>\n
120<\/p>\n
100<\/p>\n
Mfg overhead ($38 per DLH)<\/p>\n
228<\/p>\n
190<\/p>\n
Total per unit cost<\/p>\n
$1,048<\/p>\n
$710<\/p>\n
In 2014, Schultz manufactured25,000 units of the Royale and10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the direct labor hours 200,000 for the two models<\/p>\n
Under traditional costing, the gross profit on the models was: Royale $552 or ($1,600 – $1,048) and Majestic $590 or ($1,300 – $710) Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model.<\/p>\n
Before finalizing its decision, management asks Schultz’s controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2014.<\/p>\n
Activity<\/b><\/p>\n
Cost Driver<\/b><\/p>\n
EstimatedOverhead<\/b><\/p>\n
ExpectedUse ofCostDrivers<\/b><\/p>\n
Activity-BasedOverheadRate<\/b><\/p>\n
<\/p>\n
Purchasing<\/p>\n
Number of orders<\/p>\n
$1,200,000<\/p>\n
40,000<\/p>\n
$30<\/p>\n
per order<\/p>\n
Machine setups<\/p>\n
Number of setups<\/p>\n
900,000<\/p>\n
18,000<\/p>\n
50<\/p>\n
per setup<\/p>\n
Machining<\/p>\n
Machine hours<\/p>\n
4,800,000<\/p>\n
120,000<\/p>\n
40<\/p>\n
per hour<\/p>\n
Quality control<\/p>\n
Number of inspections<\/p>\n
700,000<\/p>\n
28,000<\/p>\n
25<\/p>\n
per inspection<\/p>\n
The cost drivers used for each product were:<\/p>\n
Cost Driver<\/b><\/p>\n
Royale<\/b><\/p>\n
Majestic<\/b><\/p>\n
Total<\/b><\/p>\n
Purchase orders<\/p>\n
17,000<\/p>\n
23,000<\/p>\n
40,000<\/p>\n
Machine setups<\/p>\n
5,000<\/p>\n
13,000<\/p>\n
18,000<\/p>\n
Machine hours<\/p>\n
75,000<\/p>\n
45,000<\/p>\n
120,000<\/p>\n
Inspections<\/p>\n
11,000<\/p>\n
17,000<\/p>\n
28,000<\/p>\n
Instructions<\/p>\n
a. Assign the total 2014 manufacturing overhead costs to the two products using activity-based costing (ABC).<\/p>\n
b What was the cost per unit and gross profit of each model using ABC costing?<\/p>\n
c Are management’s future plans for the two models sound? Enter your answer in the block below.<\/p>\n","protected":false},"excerpt":{"rendered":"
P4-2A Schultz Electronics manufactures two large-screen television models: the Royale which sells for$1,600 and a new model, the Majestic, which sells for$1,300 The production cost computed per unit under traditional costing for each model is 2014 was as follows. Traditional Costing Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-49235","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/49235","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=49235"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/49235\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=49235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=49235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=49235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}