The StarMusic Company manufactures two models of compact disc players: a deluxe model and a regular model. The company has manufactured the regular model for years; the deluxe model was introduced recently to tap a new segment of the market. The current cost accounting system allocates manufacturing support costs to the two products based on direct labor hours. The company provides the following information to understand the cost of the products. Particulars Deluxe Regular Production (units) 5,00,000 1,00,000 Selling price 31.86 24.00 Prime cost per unit 8.53 6.26 Number of production runs 100 200 Receiving orders 400 1,000 Machine hours 1,25,000 60,000 Direct labour hours 2,50,000 22,500 Engineering hours 5,000 5,000 Material moves 500 400 The management recommended switching the overhead assignment to an activity-based approach. It maintained that the activity-based cost assignment is more accurate and will provide better information for decision-making. To facilitate this recommendation, it grouped the Product's activities into homogeneous sets with the following costs: Setup costs 2,40,000 Machine costs 17,50,000 Receiving costs 21,00,000 Engineering costs 20,00,000 Materials handling costs 9,00,000 Total 69,90,000 a) Calculate total cost, unit cost, total gross margin, and gross margin per unit under the existing cost allocation system for the Deluxe and Regular models. b) After learning activity-based costing, Calculate total cost, unit cost, total gross margin, and gross margin per unit under the ABC system for the Deluxe and Regular models. c) Should the company switch its emphasis from Deluxe to the Regular? Assume that you are the manager of the company. Describe what actions you would take based on the information provided by the activity-based unit costs

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Answer a Calculation under the existing cost allocation system 1 Total Cost Deluxe Model Total Cost ... View the full answer