Required: 1. Calculate the unit overhead cost of the Special Model using machine hours to assign overhead costs. Round intermediate calculations and your final answer to the nearest cent, if rounding is required. per unit Now, repeat the calculation using ABC to assign overhead costs. Round intermediate calculations and your final answer to the nearest cent, per unit Did improving the accuracy of cost assignments solve Whitaker's competitive problem? Yes rounding is required. 2. Now, assume that in addition to improving the accuracy of cost assignments, James observes that defective supplier components are the root cause of both the inspection and rework activities. Suppose further that Whitaker has found a new supplier to such that inspection and rework costs are reduced by 50 percent. Now, calculate the cost of the Special Model (assuming that inspection and rework times are also reduced by 50 percent) using ABC. The relative consumption patterns also remain the san and your final answer to the nearest cent, if rounding is required. s per unit

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question

Do not give solution in image 

Whitaker Company produces two models of blenders for restaurants: the "Super Model" (priced at $395) and the "Special Model" (priced at $200). Recently, Whitaker has been losing market share with its Special Model because of competitors offering blenders with the same quality and
features but at a lower price. A careful market study revealed that if Whitaker could reduce the price of its Special Model to $180, it would regain its former share of the market. Management, however, is convinced that any price reduction must be accompanied by a cost reduction of the same
amount so that per-unit profitability is not affected. James Davis, company controller, has indicated that poor overhead costing assignments may be distorting management's view of each product's cost and, therefore, the ability to know how to set selling prices. James has identified the
following overhead activities: machining, inspection, and rework. The three activities, their costs, and practical capacities are as follows:
Activity Cost
Practical Capacity
Machining $5,398,500 91,500 machine hours
Inspection 3,731,000 45,500 inspection hours
1,848,000 46,200 rework hours
Rework
The consumption patterns of the two products are as follows:
Required:
Special
100,000
Units
Machine hours
50,900
Inspection hours
10,500
Rework hours
8,000
Whitaker assigns overhead costs to the two products using a plantwide rate based on machine hours.
Super
26,900
40,600
35,000
38,200
1. Calculate the unit overhead cost of the Special Model using machine hours to assign overhead costs. Round intermediate calculations and your final answer to the nearest cent, if rounding is required.
per unit
$
Now, repeat the calculation using ABC to assign overhead costs. Round intermediate calculations and your final answer to the nearest cent, if rounding is required.
per unit
Yes ▾
Did improving the accuracy of cost assignments solve Whitaker's competitive problem?
2. Now, assume that in addition to improving the accuracy of cost assignments, James observes that defective supplier components are the root cause of both the inspection and rework activities. Suppose further that Whitaker has found a new supplier that provides higher-quality components
such that inspection and rework costs are reduced by 50 percent. Now, calculate the cost of the Special Model (assuming that inspection and rework times are also reduced by 50 percent) using ABC. The relative consumption patterns also remain the same. Round intermediate calculations
and your final answer to the nearest cent, if rounding is required.
per unit
Transcribed Image Text:Whitaker Company produces two models of blenders for restaurants: the "Super Model" (priced at $395) and the "Special Model" (priced at $200). Recently, Whitaker has been losing market share with its Special Model because of competitors offering blenders with the same quality and features but at a lower price. A careful market study revealed that if Whitaker could reduce the price of its Special Model to $180, it would regain its former share of the market. Management, however, is convinced that any price reduction must be accompanied by a cost reduction of the same amount so that per-unit profitability is not affected. James Davis, company controller, has indicated that poor overhead costing assignments may be distorting management's view of each product's cost and, therefore, the ability to know how to set selling prices. James has identified the following overhead activities: machining, inspection, and rework. The three activities, their costs, and practical capacities are as follows: Activity Cost Practical Capacity Machining $5,398,500 91,500 machine hours Inspection 3,731,000 45,500 inspection hours 1,848,000 46,200 rework hours Rework The consumption patterns of the two products are as follows: Required: Special 100,000 Units Machine hours 50,900 Inspection hours 10,500 Rework hours 8,000 Whitaker assigns overhead costs to the two products using a plantwide rate based on machine hours. Super 26,900 40,600 35,000 38,200 1. Calculate the unit overhead cost of the Special Model using machine hours to assign overhead costs. Round intermediate calculations and your final answer to the nearest cent, if rounding is required. per unit $ Now, repeat the calculation using ABC to assign overhead costs. Round intermediate calculations and your final answer to the nearest cent, if rounding is required. per unit Yes ▾ Did improving the accuracy of cost assignments solve Whitaker's competitive problem? 2. Now, assume that in addition to improving the accuracy of cost assignments, James observes that defective supplier components are the root cause of both the inspection and rework activities. Suppose further that Whitaker has found a new supplier that provides higher-quality components such that inspection and rework costs are reduced by 50 percent. Now, calculate the cost of the Special Model (assuming that inspection and rework times are also reduced by 50 percent) using ABC. The relative consumption patterns also remain the same. Round intermediate calculations and your final answer to the nearest cent, if rounding is required. per unit
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Costing Systems
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education