The Canadian Motorcycle Company (CMC) produces two models of motorcycles: Faster and Slower. The company has five
Question:
The Canadian Motorcycle Company (CMC) produces two models of motorcycles: Faster and Slower. The company has five categories of overhead costs: purchasing, receiving, machine operating costs, handling, and shipping. Each category represents the following percentages of total overhead costs, which amount to $4 million:
Current capacity is 200,000 machine hours, and the current production uses 100% of the available hours. The sales mix is 45% Faster and 55% Slower. The overhead costs are applied to each model based on machine hours.
The production costs for each model of motorcycle and other relevant information are as follows:
Instructions
(a) CMC determines its prices by adding 40% to the materials and direct labour. Determine if this pricing policy is appropriate. Show all calculations to support your answer.
(b) Use an activity-based approach to determine whether CMC can make a profit if it sells the Faster model for $15,000. Show all supporting calculations. (Round all answers to the nearest dollar.)
Step by Step Answer:
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly