The Come-On-In company produces two types of entrance doors: Standard and Deluxe.The allocation base for indirect manufacturing costs has been
The Come-On-In company produces two types of entrance doors: Standard and Deluxe. The allocation base for indirect manufacturing costs has been direct labor hours. For 2016, the company completed the following data for the two products:
Sale Price per Unit
Direct material cost per unit
Direct labor cost per unit
General manufacturing cost per unit
During 2016, the company purchased a state-of-the-art robotic system to enable more decorative door products in the luxury product line. The CFO suggested that an ABC analysis could be valuable in helping to evaluate a product mix and promotion strategy for the next sales campaign. The information collected is the following:
Number of configurations
Number of machine hours
Number of shipments
5a. Using the current cost system, determine the total cost of manufacturing one unit of each product and the profit per unit of each product.
5b. Under the current cost system, the estimated manufacturing overhead per unit is less for the deluxe door ($80) than for the standard door ($120). What is a likely explanation for this?
5c. Using the activity-based costing data, calculate the cost driver rate for each overhead activity.
5 d. Calculate the revised manufacturing overhead cost per unit for each type of product.
5e. Is the luxury door as profitable as the original data estimated using the cost system above? Why or why not? Explain.