Question:
CVP WITH ACTIVITY-BASED COSTING
Dory Manufacturing Company produces T-shirts that are screen-printed with the logos of various sports teams. Each shirt is priced at $10. Costs are as follows:
|
Cost Driver
|
Unit Variable Cost
|
Level of Cost Driver
|
|
Units sold
|
$ 5
|
-
|
|
Setups
|
450
|
80
|
|
Engineering hours
|
20
|
500
|
|
Other data:
|
|
|
|
Total fixed costs (conventional)
|
$96,000
|
|
|
Total fixed costs (ABC)
|
50,000
|
|
Required:
1. Compute the break-even point in units using conventional analysis.
2. Compute the break-even point in units using activity-based analysis.
3. Suppose that Dory could reduce the setup cost by $150 per setup and could reduce the number of engineering hours needed to 425. How many units must be sold to break even in this case?