
Concept explainers
a
Calculate the cost per unit for each product.
a

Explanation of Solution
Calculation of
Table (1)
Hence, the total allocated cost is $467,000.
Calculation of total allocated cost and cost per unit for Model W:
Table (2)
Calculation of total allocated cost and cost per unit for Model M:
Table (3)
Calculation of cost per unit consumption:
Table (4)
Hence, the costs per unit of Model W and Model M are $26.25 and $57.75.
Working notes:
Calculation of base for material handling:
Hence, the base for material handling is 1,220,000 hours.
…… (1)
Calculation of base for machine setup:
Hence, the base for machine setups is 90 setups.
…… (2)
Calculation of base for product testing:
Hence, the base product level is 1,400 units.
…… (3)
Calculation of
Hence, the base of depreciation is 2,500 hours.
…… (4)
b)
Calculate whether Company S earns a profit or loss for the next year.
b)

Explanation of Solution
Calculation of profit or loss earned by the company previous month:
Table (5)
Hence, the company has a loss of -$25,000 on Model W and earns a profit of $162,000 on Model M.
c)
Calculate the target cost for each product and total target profit.
c)

Explanation of Solution
Calculation of target cost:
Table (6)
Hence, the target costs of Model W and Model M are $21 and $63.75.
Calculation of total target profit:
Table (7)
Hence, the total target profit from both the models is $310,000.
Working notes:
Calculation of profit margin for the Model ZM:
Hence, the profit margin for Model W is $6.25.
…… (5)
Calculation of profit margin for the Model M:
Hence, the profit margin for Model M is $58.50.
…… (6)
d
Whether the new process allows Company S to attain its target cost
d

Explanation of Solution
Calculation of overhead cost under ABC system using new process:
Table (8)
Hence, the total allocated cost is $315,200.
Calculation of total allocated cost and cost per unit for Model W:
Table (9)
Calculation of total allocated cost and cost per unit for Model W:
Table (10)
Calculation of cost per unit consumption:
Table (11)
Hence, the costs per unit of Model W and Model M are $21.30and $51.15.
Company S will not achieve its target with a new process because the cost per unit of Model W is above the target cost.
Working notes:
Calculation of machine handling cost for a new process:
Hence, the machine handling data for a new process is $73,200.
…… (7)
Calculation of setup cost for new process:
Hence, the setup cost for new process is $8,000.
Note:
The cost per setup is not affected.
…… (8)
Calculation of depreciation cost for new process:
Hence, the depreciation cost for new process is $220,000.
…… (9)
Calculation of base for setup for a new process:
Hence, the base for setup is 1,220,000 hours.
…… (10)
Calculation of base for machine hours for a new process:
Hence, the base for machine hours is 11,000 hours.
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Chapter 5 Solutions
Fundamental Managerial Accounting Concepts
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