Question

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 Direct materials Direct labor ($20 per hour) Manufacturing overhead ($42 per DLH) Total per unit cost Royale Majestic $650 $420 120 100 252 210 $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 Purchasing Number of orders Machine setups Number of setups Machining Machine hours Quality control Number of inspections Estimated Estimated Use of Activity-Based Overhead Cost Drivers Overhead Rate $1,274,100 41,100 $31/order 899,600 17,300 $52/setup 5,427,000 120,600 $45/hour 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 - Your answer is partially correct. Assign the total 2020 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 Total assigned costs $ 4513720 180.55 $ $ Majestic 3935500 393.55 Cost per unit Save for Later Attempts: 1 of 7 used Submit Answer

Answer 1

Activity based costing system is a process in which overhead costs are accumulated based on the activity done and then those are allocated product based on actual consumption of those activities by the product. Calculation of Manufacturing Overhead cost based on ABC Activity Based Royale Cost Driver Cost Driver Majectic Overhead rate (A) x (C) (A) $31 (B) 18000 $5,58,000 (A) x (B) (C) 23100 $7,16,100 12300 $6,39,600 45600 $20,52,000 18200 $5,27,800 Number of Order Number of Set ups Machine hours Number of Inspections Purchasing Machine Set ups $52 $2,60,000 75000 $33,75,000 12000 $3,48,000 $45,41,000 5000 Machine Hours Quality Control Total (D) Units Produced (E) Cost per unit (D)/(E) $45 $29 $39,35,500 10,000 25,000 $181.64 $393.55 Royale Majectic Total Assigned Cost Cost per unit $45,41,000 $39,35,500 $181.64 $393.55