Question

Sergio Uribe Project Partial AOCI 4341 Juon Company manufactures and the styl Silver and one Production takes 25. 25, and 10 machine w brass, chrome, and white faucets, respectively. The following a e t day Projected sales in units Brones O Pol Silver Brushed St SCUDO 40.000 PER UNIT data: Selling price 50 Direct materials Direct labor Overhead cost based on direct labor hours (traditional system) 515 $12 $3 10 Hours per 1000-unit batch: Direct labor hours Machine hours Setup hours Inspection hours 1.0 0.5 1.0 Total overhead costs and activity levels for the year are estimated as follows: Overhead costs Activity Direct labor hours Machine hours Setups Inspections Activity levels 2,900 hours 2,400 hours 95 setup hours 2,700 inspection hours $465,500 $405,000 $870,500 Required: a. Using the traditional system, determine the operating profit per unit for the bronze style of faucet. b. Determine the activity-cost-driver rate for setup costs and inspection costs. c. Using the ABC system, for the bronze style of faucet: 1. compute the estimated overhead costs per unit. 2. compute the estimated operating profit per unit. d. Explain the difference between the profits obtained from the traditional system and the ABC Which system provides a better estimate of profitability? Why?

Answer 1

profit pesunet for broaze style of fant a) Determination (traditional of operating system) Sol formulas Operating profit Sales Revenue Cost of sales Gross profit Other operating cost operating profit Call of operating profit pur sales revenue P.u 40 (-) cost of sale Direct Material (8) Direct labour (15) : Gross profit 17 (7) Other operating cost over heads operating profit 5 per cenit (-) - cost driver rate for setup 6) Determination & Inspection of activity costs: soli Formula; Activity Cost drive rate = Cost Call of activity cost Babteilulas setup Activity Cost pool (RS) 4,65500 ²) Cost drives 95 hrs I 4900 per her Cost pool driver biver rate: Inspection 405000 2700 hs 2 150 perts

c), Computation of estimated overheads cost per unit (ABC System Sold Overheads For bronze 4.9 Setup [24900/hr x 30] - 30000 (unit) Inspection [2 150/ 1 900] = 30000 (unis) - Total OH Cost (ABC system) 405 9.4 Formula; Overhead cost per hours & Activity level of bronze - unit of sale working note setup:/465500/300001) - 30,000 a5 operating profit per unit 2. Computation of estimated for bronze (ABC system) 40 I (8) sales revenue p.u o Cost of sale Direct Material Direct Labour . Gross profit - other operating Cost overheads (ABC system operating profit (9.4) 9 7.6 per unit

d) Difference between the profit from tradional systems & ABC system Sol operating profit (traditional system) z 5 per unit operating profit (ABC system) 276 per unit - Difference 2.6 Der unit ABC system provide bettes estimate of Profitability. Overheads are related to activities and grouped into activity cost pools when production of are high and significant cost, ABC will be very much useful instead of traditional costing system.