Question

Question 5 0/5 View Policies Show Attempt History Current Attempt in Progress 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 ($42 per DLH) Total per unit cost Royale Majestic $650 $400 100 252 210 $1,022 $710 120 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 $8,392,200 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $558 ($1,580 - $1,022) and Majestic $610 ($1,320 - $710). 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 $1,329,400 932,800 5,332,500 797,500 Estimated Use of Activity-Based Cost Drivers Overhead Rate 39,100 $34/order 17,600 $53/setup 118,500 $45/hour 27,500 $29/inspection The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders 17,000 22,100 39,100 Machine setups 5,000 12,600 17,600 Machine hours 74,000 44,500 118,500 Inspections 10,000 17,500 27,500

Answer 1

solution: Part a Activity Cost Pools | Activity-Based Overhead Rate a 34 53 Purchasing Machine setups Machining Quality control total cost assigned / number of units overhead cost per unit cost driver used cost assigned Royale Majestic Royale Majestic b c a*b a*c 17,000 22,100 | 578,000 751,400 5,000 12,600 265,000 667,800 74,000 44,500 3,330,000 2,00 2,500 10,000 17,500 290,000 507,500 4,463,000 3,929,200 25,000 10,000 178.52 392.92 45 29