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 2020 was as follows. Traditional Costing Direct materials Direct labor ($20 per hour) Manufacturing overhead ($40 per DLH) Total per unit cost Royale Majestic $600 $400 120 100 240 200 $700 In 2020. Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $40 per direct labor hour was determined by dividing total estimated manufacturing overhead of $7,922,700 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $620 ($1,580 - $960) and Majestic $620 ($1,320 - $700). 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 Purchasing Number of orders Machine setups Number of setups Machining Machine hours Quality control Number of inspections Estimated Overhead $1,267,200 943,500 4,952,800 759,200 Estimated Use of Activity-Based Cost Drivers Overhead Rate 39,600 $32/order 18,500 $51/setup 120,800 $41/hour 29,200 $26/inspection

Answer 1

Answer:

Question 2 Cost = Activity Rate X Cost Driver Royale Majestic Purchasing 544,000 $ 723,200 Calculation ($32 X 17,000) ($32 X 22,600) Machine Setups 255,000 $ 688,500 Calculation ($51 X 5,000) ($51 X 13,500) Machining $ 3,075,000 $ 1,877,800 Calculation ($41 X 75,000) ($41 X 45,800) Quality Control 286,000 $ 473,200 Calculation ($26 X 11,000) ($26 X 18,200) Total Activity Cost 4,160,000 $ 3,762,700 (544,000 + 255,000 + (723,200 + 688,500 + Calculation 3,075,000 + 286,000) 1,877,800 + 473,200) Number of Units 25,000 10,000 Overhead cost per unit $ 166.40 $ 376.27 Calculation (4,160,000/25,000) (3,762,700/10,000) Direct material per unit 600.00 $ 400.00 Direct Labor per unit 120.00 $ 100.00 Cost per unit 886.40 $ 876.27 Calculation (166.40 + 600 + 120) (376.27 + 400 + 100) s

Answer:

Calculation of Gross Profit Royale Selling price per unit $ 1,580.00 Cost per unit $ 886.40 Gross profit per unit 693.60 Calculation (1,580 - 886.40) Total units sold 25,000 Total gross profit $ 17,340,000.00 Calculation ($693.60 X 25,000) Majestic $ 1,320.00 $ 876.27 $ 443.73 (1,320 - 876.27) 10,000 $ 4,437,300.00 ($443.73 X 10,000)