castern Chemical Company produces three products. The operating results of the current year are: Actual Price $ 292.00 261.60 316.00 Sales Product Quantity A B C 1,350 6,750 675 Target Price $ 291.00 303.60 208.50 Direct materials Direct labor Total prime cost The firm sets the target price of each product at 150% of the product's total manufacturing cost. It appears that the firm was able to sell Product C at a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has he greatest potential among the firm's three products because the actual selling price of Product C was almost 50% higher than the arget price, while the firm was forced to sell Product B at a price below the target price. Both the budgeted and actual factory overhead for the current year are $648,600. The actual units sold for each product also are the same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct abor costs per unit for each product are: Difference $ 1.00 (42.00) $ 107.50 Product A $ 56.00 26.00 $ 82.00 Number of setups Weight of direct materials (pounds) Waste and hazardous disposals Quality inspections Utilities (machine hours) Total Product B $ 120.40 18.00 $ 138.40 The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the ollowing usage of factory overhead during the year: Product C $ 71.00 13.50 $84.50 Product A 3 406 31 36 2,700 Product B 6 256 51 41 7,600 Product C 4 356 36 41 1,350 Total Overhead $ 9,600 148,500 337,500 81,000 72,000 $ 648,600
castern Chemical Company produces three products. The operating results of the current year are: Actual Price $ 292.00 261.60 316.00 Sales Product Quantity A B C 1,350 6,750 675 Target Price $ 291.00 303.60 208.50 Direct materials Direct labor Total prime cost The firm sets the target price of each product at 150% of the product's total manufacturing cost. It appears that the firm was able to sell Product C at a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has he greatest potential among the firm's three products because the actual selling price of Product C was almost 50% higher than the arget price, while the firm was forced to sell Product B at a price below the target price. Both the budgeted and actual factory overhead for the current year are $648,600. The actual units sold for each product also are the same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct abor costs per unit for each product are: Difference $ 1.00 (42.00) $ 107.50 Product A $ 56.00 26.00 $ 82.00 Number of setups Weight of direct materials (pounds) Waste and hazardous disposals Quality inspections Utilities (machine hours) Total Product B $ 120.40 18.00 $ 138.40 The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the ollowing usage of factory overhead during the year: Product C $ 71.00 13.50 $84.50 Product A 3 406 31 36 2,700 Product B 6 256 51 41 7,600 Product C 4 356 36 41 1,350 Total Overhead $ 9,600 148,500 337,500 81,000 72,000 $ 648,600
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Eastern Chemical Company produces three products. The operating results of the current year are:
Difference
Actual
Price
$ 292.00
$ 1.00
261.60
(42.00)
316.00 $ 107.50
Sales
Product Quantity
A
B
C
1,350
6,750
675
Target
Price
$ 291.00
303.60
208.50
The firm sets the target price of each product at 150% of the product's total manufacturing cost. It appears that the firm was able to sell
Product C at a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to
promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has
the greatest potential among the firm's three products because the actual selling price of Product C was almost 50% higher than the
target price, while the firm was forced to sell Product B at a price below the target price.
Direct materials
Direct labor
Total prime cost
Both the budgeted and actual factory overhead for the current year are $648,600. The actual units sold for each product also are the
same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct
labor costs per unit for each product are:
Product A
$56.00
26.00
$ 82.00
Number of setups
Weight of direct materials (pounds)
Waste and hazardous disposals
Quality inspections
Utilities (machine hours)
Total
Product B
$ 120.40
18.00
$ 138.40
The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the
following usage of factory overhead during the year:
Product C
$71.00
13.50
$84.50
Product A
3
406
31
36
2,700
Product B
6
256
51
41
7,600
Product C
4
356
36
41
1,350
Total
Overhead
$ 9,600
148,500
337,500
81,000
72,000
$ 648,600
Transcribed Image Text:Required:
1. Determine the manufacturing cost per unit for each of the products using the volume-based method.
2. What is the least profitable and the most profitable product under both the current and the ABC systems?
3. What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price with the
actual selling price.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Determine the manufacturing cost per unit for each of the products using the volume-based method. (Round your
intermediate calculations and final answers to 2 decimal places.)
Materials
Labor
Overhead
Total cost
Required 1
Product A
S
Most profitable product
Least profitable product
Product costs:
Product B
0.00 $
Required:
1. Determine the manufacturing cost per unit for each of the products using the volume-based method.
2. What is the least profitable and the most profitable product under both the current and the ABC systems?
3. What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price with the
actual selling price.
Complete this question by entering your answers in the tabs below.
Required 2 Required 3
Activity system
ABC-based product pricing:
Target price
Actual selling price
Difference in price
Product C
0.00 $
What is the least profitable and the most profitable product under both the current and the ABC systems?
Current Cost Data ABC Costing System
Required 1 Required 2 Required 3
What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price
with the actual selling price. (Round your intermediate calculations and final answers to 2 decimal places.)
$
0.00
Product A
Product B
0.00 $
Product C
0.00 $
0.00
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