Kristopher Manufacturing produces
two types of entry doors: Deluxe and Standard. The allocation basis for support
costs has been direct labor dollars. For 2009, Kristopher compiled the
following data for the two products:
|
Deluxe
|
Standard
|
|
|
Sales in units
|
50,000
|
400,000
|
|
Sales price per unit
|
$650
|
$475
|
|
Direct material and labor costs
per unit
|
$180
|
$130
|
|
Manufacturing overhead costs
per unit
|
$80
|
$120
|
Last year, Kristopher purchased
an expensive robotics system to allow for more decorative door products in the
deluxe product line. The CFO suggested that an activity-based costing (ABC)
analysis could be valuable to help evaluate a product mix and promotion
strategy for the next sales campaign. She obtained the following ABC
information for 2009:
|
Activity
|
Cost
|
Cost Driver
|
Total
|
Deluxe
|
Standard
|
|
Setups
|
$500,000
|
# of setups
|
500
|
400
|
100
|
|
Machine-related
|
$44,000,000
|
# of machine hours
|
600,000
|
300,000
|
300,000
|
|
Packing
|
$5,000,000
|
# of shipments
|
250,000
|
50,000
|
200,000
|
Required
a. Using the current system, what
is the estimated
1. total cost of manufacturing
one unit for each type of door?
2. profit per unit for each type
of door?
b. Using the activity-based
costing data presented above,
1. compute the cost-driver rate
for each overhead activity.
2. compute the revised
manufacturing overhead cost per unit for each type of entry door.
3. compute the revised total cost
to manufacture one unit of each type of entry door.
4. compute the profit per unit
for each type of door.
c. Is the deluxe door as
profitable as the original data estimated? Why or why not?
TUTORIAL PREVIEW
a. Currently estimated deluxe-entry door total cost
per unit is $260 = $180 + $80.
Currently estimated standard-entry door total cost
per unit is $250 = $130 + $120.
Currently estimated deluxe-entry door profit per
unit is $390 = $650 - $260.
Currently estimated standard-entry door profit
per unit is $225 = $475 - $250.
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