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:

		Standard		Deluxe
sales units		400,000 Doors		50,000 Doors
Sale Price per Unit		$ 475		$ 690
Direct material cost per unit		$ 90		$ 120
Direct labor cost per unit		$ 40		$ 60
General manufacturing cost per unit		$ 120		$ 80

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:

Activity	cost factor	Standard	Deluxe	Total	Cost
settings	Number of configurations	100	400	500	$ 2,900,000
machine related	Number of machine hours	300.000	300.000	600.000	$ 44,100,000
Packaging	Number of shipments	200,000	50,000	250.000	$ 5,000,000

Required:

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.

Answer rating: 100% (QA)

5a Using the current cost system Total cost of manufacturing one unit of each product Standard Door View the full answer