Question

Manchester Technology, Inc, manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company's sales. The first of these boards, a television circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and price-sensitive. Manchester plans to sell 83,000 of the TV boards in 20x1 at a price of $490 per unit. The second high-volume product, a personal computer circuit board, is a recent addition to Manchester's product line. Because the PC board incorporates the latest technology, it can be sold at a premium price. The 20x1 plans Include the sale of 58,000 PC boards at $835 per unit. Manchester's management group is meeting to discuss how to spend the sales and promotion dollars for 20x1.The sales manager believes that the market share for the TV board could be expanded by concentrating Manchester's promotional efforts in this area. In response to this suggestion, the production manager sald, "Why don't you go after a bigger market for the PC board? The cost sheets that I get show that the contribution from a PC board is significantly larger than the contribution from a TV board. I know we get a premlum price for the PC board. Selling it should help overall profitability." The cost-accounting system shows that the following costs apply to the PC and TV boards. PC Board $247 Direct material Direct labor Machine time TV Board 9157 2.0 hr. 0.5 hr. 3.0 hr. 1.5 hr. Variable manufacturing overhead is applied on the basis of direct-labor hours. For 20x1, variable overhead is budgeted at $2,510,000, and direct-labor hours are estimated at 357,000. The hourly rates for machine time and direct labor are $34 and $42, respectively. The company applies a material handling charge at 10 percent of material cost. This material handling charge is not included in variable manufacturing overhead. Total 20x1 expenditures for direct material are budgeted at $27,357,000. Andrew Fulton, Manchester's controller, believes that before the management group proceeds with the discussion about allocating sales and promotional dollars to individual products, it might be worthwhile to look at these products on the basis of the activities involved in their production. Fulton has prepared the following schedule to help the management group understand this concept.

Answer 1

Please find the solution in given screen shots,

Amount in $ and intermediate calculations are rounded to two decimal point,

1) Four General Adventages associated with Activity Based Costing Below are the four general advantages of activity based costing 1) Tracing Activities for the Cost Object: This Costing uses multiple cost drivers, many of which are transaction based than product volume, it also can includes the activities which are undertaken outside of the factory 2) Decision Making It helps managers to decide in better ways as they can use more reliable product cost data. 3) Information on Cost Behaviour This helps to identify the cost drivers and its behaviour at times it may help as tool for cost reduction. 4) Cost Management Tool As it give more reliable data about the product cost-each of the activities can be identified and steps can be taken to manage or reduce the cost.

2) Sales Less: Direct Material Less: Direct Labor Less: Direct Machine Cost Less: Variable Overhead Less: Material Handling Cost Contribution $ 48,430,000 14,326,000 7,308,000 2,958,000 1,284,120 1,432,600 21,121,280.00 $ Calculation/working Note 40,670,000 Sales Price X Sales Quantity - Refer WN-1 13,031,000 Quantity X Direct Material per UNIT - Refer WN-1 6,972,000 Quantity X Lobor Hour per UNIT X Labor Rate per hour - Refer WN-1 1,411,000 Quantity X Machine Hour per UNIT X Machine Rate per hour - Refer WN-1 1,225,080 Variable Overhead Rate per Hour X Hours Consumed 1,303,100 Direct Material Cost X 10% 16,727,820.00 3) Contribution Based on Activity Based Costing $ Sales Less: Direct Material Less: Activity Based Cost Contribution 48,430,000 14,326,000 11,950,262 22,153,738 Calculation/working Note 40,670,000 Sales Price X Sales Quantity - Refer WN-1 13,031,000 Quantity X Direct Material per UNIT - Refer WN-1 4,629,690 Sum of 'Cost Driver Rate X Per UNIT Driver X Sale Quantity - Refer WN-2 23,009,310 WN-1 PC Board 58000 835 TV Board 83000 490 247 Budgeted Sale Qty Sales Price/UNIT Direct Material/UNIT Labor Hour/UNIT Machine Hour/UNIT Labor Hour Rate/Hour Machine Hour Rate/Hour Variable Overhead Rate/Hour 7.38 7.38 As Arrived below

Apportionment of Variable Overhead 2 ,510,000 Total Variable Overhead T To be approtioned based on labor hours I Hours consumed (Sale Qty X Labor Hour/UNIT) PC Board 174,000 TV Board Total 166,000 340,000 Variable Overhead per hour = Variable Overhead/Total Hours of PC & TV Boards = 2,510,000/340,000 = 7.38 Per Hour (Rounded to two decimal) WN-2 Calculation of Cost Driver Rate Budget Cost Cost Driver Cost for 58000 UNITS 83000 UNITS Required/UNIT of Cost Annual Activity Driver PC Board TV Board PC Board TV Board Rate 9,376,500 parts 0.10 527,800 365,200 148,050 boards 3.58 207,640 297,140 148,050 boards 7.16 415,280 594,280 653,100 setups 1.48 429,200 491,360 44,373 pounds 2.97 120,582 4,930 208,950 inspect 5.88 682,080 488,040 148,050 boards 73,080 104,580 6,559,000 parts 0.50 54 43 1,566,000 1,784,500 2,701,000 parts 37 1 7,789,980 301,290 148,050 boards 2.39 11 11 138,6201 198,370 11,950,262 4,629,690 Procurement 980,000 Number of Parts Production Scheduling 530,000 Number of Boards Packaging & Shipping 1,060,000 Number of Boards Machine Setup 964,000 Number of Setup Hazardous Waste Disposal 132,000 Pound of Waste Quality Control 1,228,000 No of Inspection General Supplies 186,000 Number of Board Machine Insertion 3,300,000 Number of Parts Manual Insertion 9,800,000 Number of Parts Wave-soldering 354,000 Number of Boards Total Cost for PC Board & TV Board as per Activity Based Costing 0.02 3.63 |

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