Question

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 ($40 per DLH) Total per unit cost Royale $660 120 240 $1,020 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 $8,045,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $560 ($1,580 - $1,020) 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 $1,308,800 936,000 5,069,400 730,800 Estimated Use of Cost Drivers 40,900 18,000 120,700 26,100 Activity-Based Overhead Rate $32/order $52/setup $42/hour $28/inspection The cost drivers used for each product were: Cost Drivers Purchase orders Machine setups Machine hours Inspections Royale 18,000 5,000 76,000 10,000 Majestic 22,900 13.000 44,700 16,100 Total 40,900 18.000 120,700 26,100 (a) Assign the total 2020 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.) Royale Majestic Total assigned costs $ $ Cost per unit $ $

Answer 1

Answer

• Working

Overhead assignment to ROYALE
Activity	Activity-Based Overhead Rate	No. of cost drivers	Overhead cost assigned
Cost Pools	[A]	[B]	[C = A xB]
Purchasing	32/order	18,000	$                                   576,000.00
Machine setups	52/setup	5,000	$                                   260,000.00
Machining	42/hour	76,000	$                               3,192,000.00
Quality control	28/inspection	10,000	$                                   280,000.00
Total Overhead assigned			$                               4,308,000.00

Overhead assignment to MAJESTIC
Activity	Activity-Based Overhead Rate	No. of cost drivers	Overhead cost assigned
Cost Pools	[A]	[B]	[C = A xB]
Purchasing	32/order	22,900	$                                   732,800.00
Machine setups	52/setup	13,000	$                                   676,000.00
Machining	42/hour	44,700	$                               1,877,400.00
Quality control	28/inspection	16,100	$                                   450,800.00
Total Overhead assigned			$                               3,737,000.00

• Requirement [a]

Working		Royale	Majestic
A [Calculated above]	Total Cost Assigned	$                             4,308,000.00	$            3,737,000.00
B	No. of units	25,000	10,000
C = A/B	Cost per unit	$                                         172.32	$                        373.70