# Johnson Marine manufactures marine radios in three models-the 1600 model for the small boat enthusiast who will

## Question:

Johnson Marine manufactures marine radios in three models-the 1600 model for the small boat enthusiast who will not venture far from shore, and the 2400 and 3600 models for the those with the need for more features, range, and sensitivity. Johnson manufactures only these three products. Johnson has the following manufacturing activities and the budgeted cost for each:

 Cost Set-up labor $231,000 Equipment$135,660 Assembly $739,500 Materials handling$405,000 Purchasing $92,400 Inspection$325,000 Total $1,928,560 Johnson uses a volume-based costing system that is based on labor-hours, since the assembly operation is the largest cost operation in the company. The direct labor rate is$22 per hour. Johnson is considering an ABC approach to calculating product cost and has selected the following cost drivers for each activity:

 Activity Driver Set-up labor Number of set-ups Equipment Machine hours Assembly Direct labor hours Materials handling Weight of materials Purchasing Materials cost Inspection Number of orders shipped

Johnson also has the following budgeted production data for the three products:

 1600 2400 3600 Units produced 10,000 4,000 1,000 Price $200$350 $600 Product orders 25 70 200 Production set-ups 10 50 50 Orders shipped 100 400 800 Direct materials cost per unit$40 $70$90 Weight of materials per unit 1 3 5 Direct labor hours per unit 3 4 5 Machine hours per unit 6 8 10

Required

1. Determine the unit cost for each of the three products using the current volume-based system.

2. Determine the unit cost for each of the three products using the ABC method.

3. Interpret the difference between your findings in requirements 1 and2.

Fantastic news! We've Found the answer you've been seeking!