Assignment:
Kerston Cameras, Inc., manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Kerston uses an activity-based costing system. The following are the relevant cost data for the previous month.
| Direct Cost per Unit |
Model ZM |
Model DS |
| Direct materials |
$ |
20.5 |
|
$ |
7.0 |
|
| Direct labor |
|
29.0 |
|
|
9.0 |
|
| Category |
Estimated Cost |
Cost Driver |
Use of Cost Driver |
| Unit level |
$ |
25,960 |
|
Number of units |
ZM: 2,450 units; DS: 9,350 units |
| Batch level |
|
48,880 |
|
Number of setups |
ZM: 26 setups; DS: 26 setups |
| Product level |
|
90,000 |
|
Number of TV commercials |
ZM: 14; DS: 11 |
| Facility level |
|
180,000 |
|
Number of machine hours |
ZM: 300 hours; DS: 600 hours |
|
|
|
|
|
|
| Total |
$ |
344,840 |
|
|
|
|
|
|
|
|
|
|
Kerston's facility has the capacity to operate 2,700 machine hours per month.
Required:
a. Compute the cost per unit for each product.
b. The current market price for products comparable to Model ZM is $117 and for DS is $34. If Kerston sold all of its products at the market prices, what was its profit or loss for the previous month?
c. A market expert believes that Kerston can sell as many cameras as it can produce by pricing Model ZM at $112 and Model DS at $33.8. Kerston would like to use those estimates as its target prices and have a profit margin of 20 percent of target prices. What is the target cost for each product?