Current per unit costs of PCBs

	HT Prime ($)	HT Maximums ($)	HT Zenith ($)
Direct materials	46	72	94
Direct Labor	26	26	13
Overhead	25	38	75
Cost per board	97	136	182

“And these are the costing for MKA 1919 (See below). We typically produce 50,000 units per month but we have the capacity to produce up to 70,000 units if required. MHLV’s offer for each unit is really very good. I seriously think we should accept it. At $3.85 per unit it makes it really difficult for us to even come close. Right now, we are producing each MKA 1919 for $5.16. Tell me why we should not accept MHLV’s offer? I am sure that you can see it makes sense and will ultimately save us money!”

	MKA 1919 (50,000 units) ($)
Direct materials	125,000
Direct labor	30,000
Manufacturing overhead*	60,000
General and administrative overhead**	43,000
Total costs	258,000

* Manufacturing overhead is applied on the basis of direct labor costs.

Fixed overhead = 75% of direct labor costs

Variable overhead = 125% of direct labor costs

Manufacturing overhead rate = 200% of direct labor costs

** General and administrative overhead is applied at 20 percent of the total costs of direct material, direct labor and manufacturing overhead.

REQUIRED

Whether to implement ABC or not in this case?

Answer rating: 100% (QA)

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