Question

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.


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:




REQUIRED
Selling, general, and administrative expenses per unit sold are $265.00 for Monarch and $244.50 for Regal.
A. Calculate the manufacturing cost per unit for Monarch and Regal under:
1. A traditional costing system
2. The ABC system
B. Explain the differences in manufacturing cost per unit calculated in part (A).
C. Calculate the operating profit per unit for Monarch and Regal under:
1. A traditional costing system
2. The ABC system
D. Should Applewood concentrates its marketing efforts on Monarch or on Regal? Explain how the use of ABC affects your recommendation.


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  • CreatedJanuary 26, 2015
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