Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $ 1,480, and a new model, the Majestic, which sells for $ 1,270. The production cost computed per unit under traditional costing for each model in 2020 was as follows. Traditional Costing Royale Majestic Direct materials $ 650 $ 420 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($ 42 per DLH) 252 210 Total per unit cost $ 1,022 $ 730 In 2020, 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 estimated manufacturing overhead of $ 8,476,500 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $ 458 ($ 1,480 – $ 1,022) and Majestic $ 540 ($ 1,270 – $ 730). 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, 2020. Activity Cost Pools Cost Drivers Estimated Overhead Estimated Use of Cost Drivers Activity-Based Overhead Rate Purchasing Number of orders $ 1,274,100 41,100 $ 31/order Machine setups Number of setups 899,600 17,300 $ 52/setup Machining Machine hours 5,427,000 120,600 $ 45/hour Quality control Number of inspections 875,800 30,200 $ 29/inspection The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders 18,000 23,100 41,100 Machine setups 5,000 12,300 17,300 Machine hours 75,000 45,600 120,600 Inspections 12,000 18,200 30,200 Calculate cost per unit of each model using ABC costing. Royale Majestic Cost per unit $ $
Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $ 1,480, and a new model, the Majestic, which sells for $ 1,270. The production cost computed per unit under traditional costing for each model in 2020 was as follows.
|
Traditional Costing |
Royale |
Majestic |
||
| Direct materials |
$ 650 |
$ 420 |
||
| Direct labor ($20 per hour) |
120 |
100 |
||
| Manufacturing |
252 |
210 |
||
| Total per unit cost |
$ 1,022 |
$ 730 |
In 2020, 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 estimated manufacturing overhead of $ 8,476,500 by the total direct labor hours (200,000) for the two models.
Under traditional costing, the gross profit on the models was Royale $ 458 ($ 1,480 – $ 1,022) and Majestic $ 540 ($ 1,270 – $ 730). 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, 2020.
|
Activity |
Cost Drivers |
Estimated |
Estimated Use of |
Activity-Based |
||||
| Purchasing | Number of orders | $ 1,274,100 | 41,100 | $ 31/order | ||||
| Machine setups | Number of setups | 899,600 | 17,300 | $ 52/setup | ||||
| Machining | Machine hours | 5,427,000 | 120,600 | $ 45/hour | ||||
| Quality control | Number of inspections | 875,800 | 30,200 | $ 29/inspection |
The cost drivers used for each product were:
|
Cost Drivers |
Royale |
Majestic |
Total |
|||
| Purchase orders | 18,000 | 23,100 | 41,100 | |||
| Machine setups | 5,000 | 12,300 | 17,300 | |||
| Machine hours | 75,000 | 45,600 | 120,600 | |||
| Inspections | 12,000 | 18,200 | 30,200 |
Calculate cost per unit of each model using ABC costing.
|
Royale |
Majestic |
|||
| Cost per unit |
$ |
$ |
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
