Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,580, and a new model, the Majestic, which sells for $1,320. The production cost computed per unit under traditional costing for each model in 2017 was as follows. Traditional Costing Royale Majestic Direct materials $640 $430 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($42 per DLH) 252 210 Total per unit cost $1,012 $740 In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $42 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,377,580 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $568 ($1,580 – $1,012) and Majestic $580 ($1,320 – $740). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. 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, 2017. Activity Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers Activity-Based Overhead Rate Purchasing Number of orders $1,417,500 40,500 $35/order Machine setups Number of setups 1,048,680 19,420 $54/setup Machining Machine hours 5,134,200 119,400 $43/hour Quality control Number of inspections 777,200 26,800 $29/inspection The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders 17,700 22,800 40,500 Machine setups 5,820 13,600 19,420 Machine hours 74,500 44,900 119,400 Inspections 10,300 16,500 26,800 Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.) Royale Majestic Total assigned costs $ $ Cost per unit $ $ eTextbook and Media Calculate cost per unit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.) Royale Majestic Cost per unit $ $ eTextbook and Media Calculate gross profit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.) Royale Majestic Gross profit $ $
Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,580, and a new model, the Majestic, which sells for $1,320. The production cost computed per unit under traditional costing for each model in 2017 was as follows. Traditional Costing Royale Majestic Direct materials $640 $430 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($42 per DLH) 252 210 Total per unit cost $1,012 $740 In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $42 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,377,580 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $568 ($1,580 – $1,012) and Majestic $580 ($1,320 – $740). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. 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, 2017. Activity Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers Activity-Based Overhead Rate Purchasing Number of orders $1,417,500 40,500 $35/order Machine setups Number of setups 1,048,680 19,420 $54/setup Machining Machine hours 5,134,200 119,400 $43/hour Quality control Number of inspections 777,200 26,800 $29/inspection The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders 17,700 22,800 40,500 Machine setups 5,820 13,600 19,420 Machine hours 74,500 44,900 119,400 Inspections 10,300 16,500 26,800 Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.) Royale Majestic Total assigned costs $ $ Cost per unit $ $ eTextbook and Media Calculate cost per unit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.) Royale Majestic Cost per unit $ $ eTextbook and Media Calculate gross profit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.) Royale Majestic Gross profit $ $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,580, and a new model, the Majestic, which sells for $1,320. The production cost computed per unit under traditional costing for each model in 2017 was as follows.
In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $42 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,377,580 by the total direct labor hours (200,000) for the two models.
Under traditional costing, the gross profit on the models was Royale $568 ($1,580 – $1,012) and Majestic $580 ($1,320 – $740). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model.
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, 2017.
The cost drivers used for each product were:
|
Traditional Costing
|
Royale
|
Majestic
|
||
| Direct materials |
$640
|
$430
|
||
| Direct labor ($20 per hour) |
120
|
100
|
||
| Manufacturing |
252
|
210
|
||
| Total per unit cost |
$1,012
|
$740
|
In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $42 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,377,580 by the total direct labor hours (200,000) for the two models.
Under traditional costing, the gross profit on the models was Royale $568 ($1,580 – $1,012) and Majestic $580 ($1,320 – $740). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model.
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, 2017.
|
Activity
Cost Pools |
Cost Drivers
|
Estimated
Overhead |
Expected Use of
Cost Drivers |
Activity-Based
Overhead Rate |
||||
| Purchasing | Number of orders | $1,417,500 | 40,500 | $35/order | ||||
| Machine setups | Number of setups | 1,048,680 | 19,420 | $54/setup | ||||
| Machining | Machine hours | 5,134,200 | 119,400 | $43/hour | ||||
| Quality control | Number of inspections | 777,200 | 26,800 | $29/inspection |
The cost drivers used for each product were:
|
Cost Drivers
|
Royale
|
Majestic
|
Total
|
|||
| Purchase orders | 17,700 | 22,800 | 40,500 | |||
| Machine setups | 5,820 | 13,600 | 19,420 | |||
| Machine hours | 74,500 | 44,900 | 119,400 | |||
| Inspections | 10,300 | 16,500 | 26,800 |
Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.)
|
Royale
|
Majestic
|
|||
| Total assigned costs |
$
|
$
|
||
| Cost per unit |
$
|
$
|
eTextbook and Media
Calculate cost per unit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)
|
Royale
|
Majestic
|
|||
| Cost per unit |
$
|
$
|
eTextbook and Media
Calculate gross profit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)
|
Royale
|
Majestic
|
|||
| Gross profit |
$
|
$
|
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