Problem 17-2A
Schultz Electronics manufactures two large-screen television models: the Royale which sells for $1,570, and a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing for each model in 2014 was as follows.
Traditional Costing   Royale   Majestic
Direct materials   $660   $410
Direct labor ($20 per hour)   120   100
Manufacturing overhead ($40per DLH)   240   200
Total per unit cost   $1,020   $710

In 2014, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $40per direct labor hour was determined by dividing total expected manufacturing overhead of $7,920,900by the total direct labor hours (200,000) for the two models.
Under traditional costing, the gross profit on the models was Royale $550or ($1,570– $1,020), and Majestic $590or ($1,300– $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, 2014.
Activities   Cost Drivers   Estimated
Overhead
  Expected Use of
Cost Drivers
  Activity-Based
Overhead Rate
Purchasing   Number of orders   $1,244,960   40,160   $31/order
Machine setups   Number of setups   913,680   16,920   54/setup
Machining   Machine hours   5,010,180   119,290   42/hour
Quality control   Number of inspections   752,080   26,860   28/inspection

The cost drivers used for each product were:
Cost Drivers   Royale   Majestic
  Total
Purchase orders   16,600   23,560   40,160
Machine setups   4,150   12,770   16,920
Machine hours   74,450   44,840   119,290
Inspections   10,300   16,560   26,860
 
Assign the total 2014 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   $   $
 

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What was the cost per unit of each model using ABC costing. (Round cost per unit to 2 decimal places, e.g. $12.25.)
    Royale   Majestic
Cost per unit   $   $
 

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What was the gross profit of each model using ABC costing. (Round answers to 2 decimal places, e.g. $12.25.)
    Royale   Majestic
Gross profit   $   $
 
Exercise 17-8
Santana Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin, plant. The following costs are budgeted for the first quarter’s operations.
Machine setup, indirect materials   $4,000
Inspections   16,000
Tests   4,000
Insurance, plant   110,000
Engineering design   140,000
Depreciation, machinery   520,000
Machine setup, indirect labor   20,000
Property taxes   29,000
Oil, heating   19,000
Electricity, plant lighting   21,000
Engineering prototypes   60,000
Depreciation, plant   210,000
Electricity, machinery   36,000
Machine maintenance wages   19,000
 
Classify the above costs of Santana Corporation into activity cost pools using the following: engineering, machinery, machine setup, quality control, factory utilities, maintenance.
Budgeted Costs   Activity Cost Pool
Machine setup, indirect materials   Machine SetupEngineeringMachineryQuality ControlFactory UtilitiesMaintenance
Inspections   Machine SetupQuality ControlFactory UtilitiesEngineeringMachineryMaintenance
Tests   MaintenanceQuality ControlFactory UtilitiesEngineeringMachineryMachine Setup
Insurance, plant   EngineeringMaintenanceMachine SetupFactory UtilitiesMachineryQuality Control
Engineering design   MaintenanceEngineeringQuality ControlFactory UtilitiesMachine SetupMachinery
Depreciation, machinery   MachineryMaintenanceEngineeringFactory UtilitiesMachine SetupQuality Control
Machine setup, indirect labor   Quality ControlMaintenanceFactory UtilitiesEngineeringMachineryMachine Setup
Property taxes   MaintenanceEngineeringMachineryMachine SetupQuality ControlFactory Utilities
Oil, heating   MaintenanceFactory UtilitiesEngineeringMachineryMachine SetupQuality Control
Electricity, plant lighting   Machine SetupFactory UtilitiesMachineryMaintenanceEngineeringQuality Control
Engineering prototypes   Machine SetupQuality ControlEngineeringFactory UtilitiesMaintenanceMachinery
Depreciation, plant   MaintenanceMachineryQuality ControlMachine SetupFactory UtilitiesEngineering
Electricity, machinery   MaintenanceMachine SetupFactory UtilitiesEngineeringQuality ControlMachinery
Machine maintenance wages   Machine SetupQuality ControlEngineeringFactory UtilitiesMaintenanceMachinery
 

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Identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.
Budgeted Costs   Cost Driver
Machine setup, indirect materials   Engineering HoursNumber of Purchase OrdersSquare Feet or Machine HoursNumber of EmployeesDirect Labor HoursNumber of RequisitionsMachine HoursNumber of Machines or Machine HoursNumber of Tests or InspectionsNumber of SetupsNumber of Parts or Assemblies
Inspections   Number of Tests or InspectionsSquare Feet or Machine HoursNumber of Parts or AssembliesNumber of Purchase OrdersNumber of EmployeesNumber of Machines or Machine HoursMachine HoursNumber of RequisitionsEngineering HoursNumber of SetupsDirect Labor Hours
Tests   Machine HoursSquare Feet or Machine HoursNumber of Tests or InspectionsNumber of SetupsNumber of Machines or Machine HoursNumber of Parts or AssembliesNumber of RequisitionsNumber of EmployeesDirect Labor HoursNumber of Purchase OrdersEngineering Hours
Insurance, plant   Square Feet or Machine HoursNumber of Tests or InspectionsEngineering HoursNumber of EmployeesNumber of SetupsNumber of Purchase OrdersMachine HoursNumber of RequisitionsDirect Labor HoursNumber of Machines or Machine HoursNumber of Parts or Assemblies
Engineering design   Number of Tests or InspectionsEngineering HoursDirect Labor HoursSquare Feet or Machine HoursMachine HoursNumber of EmployeesNumber of RequisitionsNumber of SetupsNumber of Machines or Machine HoursNumber of Purchase OrdersNumber of Parts or Assemblies
Depreciation, machinery   Number of Tests or InspectionsEngineering HoursNumber of Purchase OrdersNumber of Machines or Machine HoursSquare Feet or Machine HoursNumber of RequisitionsNumber of Parts or AssembliesNumber of EmployeesDirect Labor HoursMachine HoursNumber of Setups
Machine setup, indirect labor   Number of RequisitionsNumber of Parts or AssembliesSquare Feet or Machine HoursNumber of Purchase OrdersNumber of EmployeesEngineering HoursDirect Labor HoursMachine HoursNumber of Tests or InspectionsNumber of SetupsNumber of Machines or Machine Hours
Property taxes   Machine HoursNumber of Machines or Machine HoursNumber of SetupsNumber of Tests or InspectionsSquare Feet or Machine HoursNumber of Parts or AssembliesNumber of EmployeesNumber of RequisitionsDirect Labor HoursNumber of Purchase OrdersEngineering Hours
Oil, heating   Direct Labor HoursNumber of Tests or InspectionsSquare Feet or Machine HoursNumber of Parts or AssembliesNumber of RequisitionsNumber of EmployeesNumber of Machines or Machine HoursNumber of Purchase OrdersEngineering HoursMachine HoursNumber of Setups
Electricity, plant lighting   Number of Machines or Machine HoursNumber of EmployeesNumber of RequisitionsDirect Labor HoursNumber of Parts or AssembliesEngineering HoursNumber of Purchase OrdersMachine HoursNumber of SetupsNumber of Tests or InspectionsSquare Feet or Machine Hours
Engineering prototypes   Machine HoursNumber of SetupsNumber of Tests or InspectionsNumber of RequisitionsSquare Feet or Machine HoursNumber of Purchase OrdersEngineering HoursNumber of Machines or Machine HoursNumber of Parts or AssembliesNumber of EmployeesDirect Labor Hours
Depreciation, plant   Engineering HoursNumber of Parts or AssembliesNumber of RequisitionsNumber of Purchase OrdersDirect Labor HoursMachine HoursSquare Feet or Machine HoursNumber of SetupsNumber of Tests or InspectionsNumber of EmployeesNumber of Machines or Machine Hours
Electricity, machinery   Engineering HoursDirect Labor HoursNumber of SetupsNumber of Tests or InspectionsMachine HoursNumber of Machines or Machine HoursNumber of Parts or AssembliesNumber of EmployeesNumber of RequisitionsNumber of Purchase OrdersSquare Feet or Machine Hours
Machine maintenance wages   Number of Tests or InspectionsNumber of Parts or AssembliesMachine HoursNumber of SetupsDirect Labor HoursEngineering HoursNumber of Purchase OrdersSquare Feet or Machine HoursNumber of Machines or Machine HoursNumber of EmployeesNumber of Requisitions

Answers

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