Question

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 ($40 per DLH) Total per unit cost Royale $600 120 240 $960 Majestic $400 100 200 $700 In 2020. Schultz manufactured 25,000 units of the Royale and 10.000 units of the Majestic The overhead rate of $40 per direct labor hour was determined by dividing total estimated manufacturing overhead of $7,922,700 by the total direct labor hours (200,000) for the two models Under traditional costing the gross profit on the models was Royale $620 ($1.580 - $960) and Majestic $620 ($1,320 - $700). 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 Purchasing Machine setups Machining Quality control Cost Drivers Number of orders Number of setups Machine hours Number of inspections Estimated Overhead $1.267.200 943,500 4.952,800 759.200 Estimated Use of Cost Drivers 39.600 18,500 120,800 29,200 Activity-Based Overhead Rate $32/order $51/setup $41/hour $26/inspection

Answer 1

Hi

Let me know in case you face any issue:

Answers are highlighted in yellow: Solution: Direct Material Direct Labor Manufacturing overhead Cost per unit Royale Majestic $ 600.00 $ 400.00 $ 120.00 $ 100.00 $ 166.40 $ 376.27 $ 886.40 $ 876.27