Question

$19.30 13.90 83.80 S 26.80 18.90 105.00 S 2,170 6,300 20 120 1,500 5003.000

Answer 1

	Sandy Beach	Rocky River
Direct Material per unit	19.3	26.8
Direct Labor per unit	13.9	18.9
Selling Price per unit	83.8	105
Expected production per month	1220 units	920 units
Monthly overhead Total	11560	Cost Driver	Sandy Beach	Rocky River	Total
Setup costs	2170	No. of Setups	20	15	35
Quality control	6300	No. of inspections	120	405	525
Maintenance	3090	No. of machine hours	1500	1500	3000
1
Under traditional costing, all overheads are allocated on the basis of machine hours. i.e. 1500 and 1500.
Allocated overhead costs = Total overheads/ Total machine hours
Allocated overheads costs = 11560/3000 = $3.85
Overheads allocated = 3.85*1500each = $ 5780
		Sandy Beach	Rocky River
Overheads as per traditional method		5780	5780
2
Production cost per unit = (Direct labor per unit + Direct Material per unit + (Overheads/Production units)
	Sandy Beach		Rocky River
Production cost per unit	13.9+19.3+(5780/1220)		18.9+26.8+(5780/920)
Production cost per unit	$ 37.93 Approx		$ 51.98 Approx
3
Gross margin per unit = Selling price per unit - production costs per unit
Gross Margin % = Gross Margin/ Selling Price*100
	Sandy Beach	Rocky River
Gross Margin	83.8-37.94 = 45.86	105-51.98 = 53.02
Gross Margin%	54.72%	50.49%
4
Cost Pool	Cost Driver
Setup	No. of setups
Quality Control	No. of Inspections
Maintenance	No. of machine hours
Setup costs = Total setup costs / Total setup * No. of setup of each activity
Qualty control costs = Total Quality control costs/Total inspections * No. of inspections for each activity
Maintenance costs = Total maintenance costs/Total machine hours * No. of machine hours for each activity
	Sandy Beach		Rocky River
Setup	2170/35*20 = 1240		2170/35*15 = 930
Qualtiy Control	6300/525*120 = 1440		6300/525*405 = 4860
Maintenance	3090/3000*1500 = 1545		3090/3000*1500 = 1545
5
Taking demand as the cost driver for overheads
Total Demand = 1220 + 920 = 2140
	Sandy Beach		Rocky River
Setup	2170/2140*1220 = 1237		2170/2140*920 = 933
Qualtiy Control	6300/2140*1220 = 3592		6300/2140*920 = 2708
Maintenance	3090/2140*1220 = 1762		3090/2140*920 = 1328
Total Overhead Costs	6591		4969
6
Production cost per unit = Direct Material + Direct Labor + Setup Cost + Quality Control + Maintenance
Costs of cost pools have already been calculated by ABC in Question 4
	Sandy Beach		Rocky River
Direct Material	19.3		26.8
Direct Labor	13.9		18.9
Setup	1240/1220 = 1.01		930/920 = 1.01
Quality Control	1440/1220 = 1.18		4860/920 = 5.28
Maintenance	1545/1220 = 1.27		1545/920 = 1.68
Total cost per unit	36.67		53.67
7
Gross margin per product = Selling price per unit - cost per unit
Gross margin 5 = Selling price per unit - Cost per unit/Selling price per unit * 100
	Sandy Beach		Rocky River
Gross Margin	83.8-36.67 = 47.13		105-53.67 = 51.33
Gross Margin%	56.24%		48.88%
8
	Sandy Beach		Rocky River
Gross Margin per unit (Traditional)	45.86		53.02
Gross margin per unit (ABC)	47.13		51.33
Calculated in question 3,7 above