Chairs Caribe manufactures two type offices, and the Oro Model, an econ« company is concerned that the com lowering the prices of economy chai TI.

Principles of Accounting Volume 2
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Chapter10: Short-term Decision Making
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Chairs Caribe manufactures two types of chairs, the Diamante Model, for high-top professional
offices, and the Oro Model, an economical chair for middle-class families. The president of the
company is concerned that the company had losses last quarter and the competition is
lowering the prices of economy chairs. It was the first time the company had a loss.
The market price for the Diamond Model is $ 130 per chair. The Gold Model sells for $ 84 per
chair.
The company's accountant collected the following data:
- Direct materials from the Diamond Model $ 27 for each chair
- Direct materials from the Gold Model $ 17 for each chair
- Direct labor of the Diamond Model $ 20 per hour; two hours for each chair = $ 40
Direct labor of the Gold Model $ 20 per hour; one hour per chair = $ 20
-
The accountant classified the other manufacturing costs as follows:
gold
Budget
Cost Driver
Diamond
300,000
750,000
Unit level
# of chairs
15,000
35,000
Batch level
# of setups
104
146
Product level
450,000
# of AD on TV.
10
Factory level
500,000
# of machine hrs.
1,500
3,500
REQUIRED
1. Use ABC and calculate the cost of production for each chair model. Round to two decimal
places.
2. If the other manufacturing costs had been charged to the products based on labor hours,
instead of using ABC, calculate the cost that each model would have had.
3. Why do you think the company made a loss last quarter?
Transcribed Image Text:Chairs Caribe manufactures two types of chairs, the Diamante Model, for high-top professional offices, and the Oro Model, an economical chair for middle-class families. The president of the company is concerned that the company had losses last quarter and the competition is lowering the prices of economy chairs. It was the first time the company had a loss. The market price for the Diamond Model is $ 130 per chair. The Gold Model sells for $ 84 per chair. The company's accountant collected the following data: - Direct materials from the Diamond Model $ 27 for each chair - Direct materials from the Gold Model $ 17 for each chair - Direct labor of the Diamond Model $ 20 per hour; two hours for each chair = $ 40 Direct labor of the Gold Model $ 20 per hour; one hour per chair = $ 20 - The accountant classified the other manufacturing costs as follows: gold Budget Cost Driver Diamond 300,000 750,000 Unit level # of chairs 15,000 35,000 Batch level # of setups 104 146 Product level 450,000 # of AD on TV. 10 Factory level 500,000 # of machine hrs. 1,500 3,500 REQUIRED 1. Use ABC and calculate the cost of production for each chair model. Round to two decimal places. 2. If the other manufacturing costs had been charged to the products based on labor hours, instead of using ABC, calculate the cost that each model would have had. 3. Why do you think the company made a loss last quarter?
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