Jacobson Electronics manufactures two HD television models: the Royale, which sells for $1,400, and a new model,
Question:
Traditional Costing................................................. Royale............... Majestic
Direct materials ...........................................................$600................... $320
Direct labour ($20 per hour) ..............................................100..................... 80
Manufacturing overhead ($35 per direct labour hour) .................175.................... 140
Total per unit cost .........................................................$875 ..................$540
In 2012, Jacobson manufactured 20,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $35 per direct labour hour was determined by dividing total expected manufacturing overhead of $4.9 million by the total direct labour hours (140,000) for the two models.
Under traditional costing, the gross profit on the models was $525 for the Royale or ($1,400 $875), and $560 for the Majestic or ($1,100 $540). 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 Jacobson'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, 2012:
The cost drivers used for each product were as follows:
Instructions
(a) Assign the total 2012 manufacturing overhead costs to the two products using activity-based costing (ABC).
(b) What was the cost per unit and gross profit of each model using ABC costing?
(c) Are management's future plans for the two models sound? Explain.
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Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118033890
3rd Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
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