Question

20,000 P4-2A Assign overhead to Schultz Electronics manufactures two ultra high-definition televis a new model, the Majestic, which sells for $1,300. The production usin Royale which sells for $1,600 and unit under traditional costing for each model in 2017 as follows. and evaluate decision computed pe Traditional Costing Direct materials Direct labor ($20 per hours) Manufacturing overhead ($38 per DLH) RoyaleMajestic $700 120 228 $1,048 Total per unit cost 100 $71 uitz manufactured 25,000 units of the Royale and 10,000 units of the Ma Majestic. The overhead rate of overhead of $7,600,000 by the total direct labor hou ect labor hour was determined by dividing total expected manufacturing ove rs (200,000) for the two model:s. ($1 the production of the Majestic model. ger traditional costing, the gross profit on the models was Royale 552 ($1,600 1,300-5710). Because of this difference, management is considering phasing out -$1,048) and Majestic $590 Before finalizing its decision, management asks Sc costing (ABC). The controller accumulates the following information about oveme hultz's controller to prepare an analysis using activity-based Activity Cost Pools Estimated Use Activity-Based Estimated Overhead Rates of Cost Drivers Cost Drivers Purchasing Machine setups Machining Quality control Number of orders Number of setups Machine hours Number of inspections $1,200,000 900,000 4,800,000 700,000 40,000 18,000 120,000 28,000 $25/inspection $30/order $50/setup $40/hour The cost drivers used for each product were: Majestic 13,000 17,000 Total 40,000 18,000 120,000 28,000 Royale 17,00023,000 Cost Drivers Purchase orders Machine setups Machine hours Inspections 75,000 11,000

Answer 1

Allocation of Overhead Cost
Under ABC Costing
	Royale	Majestic	Total
Purchasing	564,400	751,400	1,315,800
	$34 X 16600 Nos	$34 X 22100 Nos
Machine Setups	258,640	667,800	926,440
	$53 X 4880 Nos	$53 X 12600 Nos
Machinings	3,343,500	2,002,500	5,346,000
	$45 X 74300 Nos	$45 X 44500 Nos
Quality Control	298,700	507,500	806,200
	$29 X 10300 Nos	$29 X 17500 Nos
Total	4,465,240	3,929,200	8,394,440
Calculation of Overhead Cost per Unit
	Royale	Majestic
Overhead Cost Allocated	4,465,240	3,929,200
No. of Units	25,000	10,000
Overhead Cost per Unit	178.61	392.92
Calculation of Cost Per Unit
Under ABC Costing
	Royale	Majestic
Direct Materials	650.00	400.00
Direct Labor	120.00	100.00
Manufacturing Overhead	178.61	392.92
Total Cost per Unit	948.61	892.92
Calculation of Gross Profit Per Unit
Under ABC Costing
	Royale	Majestic
SP per Unit	1,580.00	1,320.00
Less: Cost per Unit	948.61	892.92
Gross Profit Per Unit	631.39	427.08