Problem 1: Applewood Electronics manufactures two large-screen television models, the Monarch, which has been produced for five years and sells for $900, and the Regal, a new model that sells for $1,140. Applewood’s CEO, Harry Hazelwood, suggested that the company should concentrate its marketing resources on the Regal model and begin to phase out the Monarch model.
Applewood currently uses a traditional costing system. The following cost information has been used as a basis for pricing decisions over the past year.
|
Per-Unit Data
|
Monarch
|
Regal
|
|
Direct materials
|
$208
|
$584
|
|
Direct labor hours
|
1.5
|
3.5
|
|
Machine hours
|
8.0
|
4.0
|
|
Units produced
|
22,000
|
4,000
|
Problem 2: Direct labor cost is $12 per hour, and the machine usage cost is $18 per hour. Manufacturing overhead costs were estimated at $4,800,000 and were allocated on the basis of machine hours.
Martin Alecks, the new company controller, suggested that an activity-based costing analysis first be run to get a better picture of the true manufacturing cost. The following data were collected:
|
Activity Center
|
Cost Driver
|
Traceable Costs
|
|
Soldering
|
Number of solder joints
|
$ 942,000
|
|
Shipments
|
Number of shipments
|
860,000
|
|
Quality control
|
Number of inspections
|
1,240,000
|
|
Purchase orders
|
Number of orders
|
950,400
|
|
Machining
|
Machine hours
|
57,600
|
|
Machine setups
|
Number of setups
|
750,000
|
|
|
Total traceable costs
|
|
$4,800,000
|
|
|
|
Number of Events
|
|
|
Activity
|
Monarch
|
Regal
|
Total
|
|
Soldering
|
1,185,000
|
385,000
|
1,570,000
|
|
Shipments
|
16,200
|
3,800
|
20,000
|
|
Quality control
|
56,200
|
21,300
|
77,500
|
|
Purchase orders
|
80,100
|
109,980
|
190,080
|
|
Machining
|
176,000
|
16,000
|
192,000
|
|
Machine setups
|
16,000
|
14,000
|
30,000
|
Selling, general, and administrative expenses per unit sold are $265.00 for Monarch and $244.50 for Regal.
REQUIRED:
Question 1: Calculate the manufacturing cost per unit for Monarch and Regal under:
1. A traditional costing system
2. The ABC system
Question 2: Explain the differences in manufacturing cost per unit calculated in part (A).
Question 3: Calculate the operating profit per unit for Monarch and Regal under:
1. A traditional costing system
2. The ABC system
Question 4: Should Applewood concentrate its marketing efforts on Monarch or on Regal? Explain how the use of ABC affects your recommendation.