Question

Question 3 of 3 -/4 View Policies Current Attempt in Progress Crane Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,480, and a new model, the Majestic, which sells for $1,270. 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 ($38 per DLH) Total per unit cost Royale $600 120 228 $948 Majestic $390 100 190 $680 In 2020, Crane manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total estimated manufacturing overhead of $7,508,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $532 ($1,480 - $948) and Majestic $590 ($1,270 - $680). 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 Crane'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 $1,178,000 816,000 4,838,000 676,000 Estimated Use of Cost Drivers 38,000 16,000 118,000 26,000 Activity-Based Overhead Rate $31/order $51/setup $41/hour $26/inspection The cost drivers used for each product were: Cost Drivers Purchase orders Machine setups Machine hours Inspections Royale 16,000 4,000 74,000 10,000 Majestic 22,000 12,000 44,000 16,000 Total 38,000 16,000 118,000 26,000

Answer 1

Solution : Requirement 1 : Page! Royale Majestic Daivers Used Cast Assigned Drivers elsed last Asifend Querhead Rate (A) ( (AXC) (B) (c) ) (AXB) $496,000 22,000 $682,000 Purchase Onders ($31) 16,000 Machine Setups ($51) 4,000 $204,000 12,000 $612,000 $3034,000 44,000 $1804,000 Machine hours ($41) 74,000 10,000 $260.000 16,000 $416,000 Inspections ($26) Total assigned Cat (a) Units Produced (B) $3994000 $3514000 25,000 10,000 $159.76 $351.40 lost per lluit (A+B) Answer I Total assigned costs pee Royal Majestic $3,994,000 $3514.000 $159.76 $351.40 Cost uit

ABC costing - $ loo Requirement 2: Calculate Cost per unit of each Page 2 model using Royale Majestic Direct Materials per unit $ 600 $390 Direct Labor per unit $120 Manufacturing Overhead per unit $159.76 $351.40 000. Cost per $879.76 $841.40 Answer 2 2 Royale Majestic Cost pea thit $879.76 $841.40 Requirement 3: Calculate Geass Profit of each model using Cost per Unit ABC Costing Sale Price per unit Less: Cost per unit Geass Profit per unit Answer 3 3 Royale Majestic $ 1480 $1,270 $879.76 $ 841.40 $600.24 $428.60 Grass Profit Royale Majestic $600.24 $428.60