The Chromosome Manufacturing Company produces two products, X and Y. The company president, Gene Mutation, is concerned about the fierce competition in the market for product X. He notes that competitors are selling X for a price well below Chromosome's price of P12.70. At the same time, he notes that competitors are pricing product Y almost twice as high as Chromosome's price of P12.50. Mr.Mutation has obtained the following data for a recent time period: Product X Product Y Number of units 11,000 3,000 Direct Materials cost per unit P3.23 P3.09 Direct Labor cost per unit P2.22 P2.10 Direct Labor hours 10,000 2,500 Machine hours 2,100 2,800 Inspection hours 80 100 Purchase orders 10 10 Mr. Mutation has learned that overhead costs are assigned to products on the basis of direct labor hours. The overhead costs for his time period consisted of the following items: Overhead Cost item Amount Inspection Costs P16,200 Purchasing Costs 8,000 Machine Cost 49,000 Total P73,200 Required: 1. Using the direct labor hours to allocate overhead costs, determine the gross margin per unit or Product X and Y 2. Using ABC , determine the gross margin per unit for Product X and Y
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
The Chromosome Manufacturing Company produces two products, X and Y. The company president, Gene Mutation, is concerned about the fierce competition in the market for product X. He notes that competitors are selling X for a price well below Chromosome's price of P12.70. At the same time, he notes that competitors are pricing product Y almost twice as high as Chromosome's price of P12.50.
Mr.Mutation has obtained the following data for a recent time period:
| Product X | Product Y | |
| Number of units | 11,000 | 3,000 |
| Direct Materials cost per unit | P3.23 | P3.09 |
| Direct Labor cost per unit | P2.22 | P2.10 |
| Direct Labor hours | 10,000 | 2,500 |
| Machine hours | 2,100 | 2,800 |
| Inspection hours | 80 | 100 |
| Purchase orders | 10 | 10 |
Mr. Mutation has learned that overhead costs are assigned to products on the basis of direct labor hours. The overhead costs for his time period consisted of the following items:
| Overhead Cost item | Amount |
| Inspection Costs | P16,200 |
| Purchasing Costs | 8,000 |
| Machine Cost | 49,000 |
| Total | P73,200 |
Required:
1. Using the direct labor hours to allocate overhead costs, determine the gross margin per unit or Product X and Y
2. Using ABC , determine the gross margin per unit for Product X and Y
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