2. Austin 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. Few per unit cost data are given: Traditional Costing DM Royale $850 Majestic $570 DL ($20 per hour) MOH ($38 per DLH) $140 $248 $100 $190 In 2017, Austin manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models. Management is considering phasing out the Royale model (comparatively low profit) and increasing the production of the Majestic model Before finalizing its decision, management asks Austin's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017. Est. Overhead Activity | Level 40,000 18,000 Activities Cost Activity Rate ?? Drivers Cost ($) No. of orders 1,200,000 No. of setups 900,000 Purchasing Machine ?? Setups Machining Machine hours No. of 4,800,000 120,000 ?? 700,000 28,000 Quality Control ?? inspections Cost Royale Majestic Total Activity Drivers Level Purchasing 17,000 5,000 23,000 13,000 40,000 18,000 Machine Setups Machining Quality Control 75,000 11,000 | 45,000 17,000 120,000 28,000
2. Austin 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. Few per unit cost data are given: Traditional Costing DM Royale $850 Majestic $570 DL ($20 per hour) MOH ($38 per DLH) $140 $248 $100 $190 In 2017, Austin manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models. Management is considering phasing out the Royale model (comparatively low profit) and increasing the production of the Majestic model Before finalizing its decision, management asks Austin's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017. Est. Overhead Activity | Level 40,000 18,000 Activities Cost Activity Rate ?? Drivers Cost ($) No. of orders 1,200,000 No. of setups 900,000 Purchasing Machine ?? Setups Machining Machine hours No. of 4,800,000 120,000 ?? 700,000 28,000 Quality Control ?? inspections Cost Royale Majestic Total Activity Drivers Level Purchasing 17,000 5,000 23,000 13,000 40,000 18,000 Machine Setups Machining Quality Control 75,000 11,000 | 45,000 17,000 120,000 28,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:c) What was the cost per unit and gross profit of each model using ABC?
d) Briefly explain the difference between the cost figures of Traditional and
ABC system.
Transcribed Image Text:2. Austin 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. Few per unit cost data are given:
Traditional Costing
DM
Royale
$850
Majestic
$570
DL ($20 per hour)
MOH ($38 per DLH)
$140
$248
$100
$190
In 2017, Austin manufactured 25,000 units of the Royale and 10,000 units of the
Majestic. The overhead rate of $38 per direct labor hour was determined by
dividing total expected manufacturing overhead of $7,600,000 by the total direct
labor hours (200,000) for the two models.
Management is considering phasing out the Royale model (comparatively low
profit) and increasing the production of the Majestic model
Before finalizing its decision, management asks Austin's controller to prepare an
analysis using activity-based costing (ABC). The controller accumulates the
following information about overhead for the year ended December 31, 2017.
Est. Overhead Activity
| Level
40,000
18,000
Activities
Cost
Activity
Rate
??
Drivers
Cost ($)
No. of orders 1,200,000
No. of setups 900,000
Purchasing
Machine
??
Setups
Machining
Machine
hours
No. of
4,800,000
120,000
??
700,000
28,000
Quality
Control
??
inspections
Cost
Royale
Majestic
Total Activity
Drivers
Level
Purchasing
17,000
5,000
23,000
13,000
40,000
18,000
Machine
Setups
Machining
Quality
Control
75,000
11,000
| 45,000
17,000
120,000
28,000
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