Vernon Chairs, Incorporated makes two types of chairs. Model Diamond is a high-end product designed for...

 

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Vernon Chairs, Incorporated makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an economical product designed for family use. Jane Silva, the president, is worried about cut-throat price competition in the chairs market. Her company suffered a loss last quarter, an unprecedented event in its history. The company's accountant prepared the following cost data for Ms. Silva: Direct Cost per Unit Direct materials Direct labor Category Unit level Batch level Product level Facility level Total Model Diamond (D) $ 20.40 per unit Model Gold (G) $10.20 per unit $ 17.40/hour 2.00 hours production time $ 17.40/hour x 1.00 hour production time Estimated Cost $ 266,800 Cost Driver Number of units 986,000 Number of setups 425,000 470,000 Number of TV commercials Number of machine hours $ 2,147,800 Use of Cost Driver D: 18,000 units; G: 28,000 units D: 106 setups; G: 184 setups D: 6; G: 11 D: 2,200 hours; G: 2,500 hours The market price for office chairs comparable to Model Diamond is $122 and to Model Gold is $80. Required a. Compute the cost per unit for both products. b. Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 170 units of Model Diamond per batch and 152 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion. Vernon Chairs, Incorporated makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an economical product designed for family use. Jane Silva, the president, is worried about cut-throat price competition in the chairs market. Her company suffered a loss last quarter, an unprecedented event in its history. The company's accountant prepared the following cost data for Ms. Silva: Direct Cost per Unit Direct materials Direct labor Category Unit level Batch level Product level Facility level Total Model Diamond (D) $ 20.40 per unit Model Gold (G) $10.20 per unit $ 17.40/hour 2.00 hours production time $ 17.40/hour x 1.00 hour production time Estimated Cost $ 266,800 Cost Driver Number of units 986,000 Number of setups 425,000 470,000 Number of TV commercials Number of machine hours $ 2,147,800 Use of Cost Driver D: 18,000 units; G: 28,000 units D: 106 setups; G: 184 setups D: 6; G: 11 D: 2,200 hours; G: 2,500 hours The market price for office chairs comparable to Model Diamond is $122 and to Model Gold is $80. Required a. Compute the cost per unit for both products. b. Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 170 units of Model Diamond per batch and 152 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion.

Answer rating: 100% (QA)

a Cost per Unit for Both Products 1 Direct Costs Model Diamond D Direct materials 2040 per unit Dire... View the full answer