Calculate the manufacturing cost per unit

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Reference no: EM131173533

ABC, ABM (CMA) Apple wood Electronics manufactures two large-screen television models, the Monarch, which has been produced for five years and sells for $900, and the Regal, a new model that sells for $1,140. Applewood's CEO, Harry Hazelwood, suggested that the company should concentrate its marketing resources on the Regal model and begin to phase out the Monarch model.

Applewood currently uses a traditional costing system. The following cost information has been used as a basis for pricing decisions over the past year.

Per-Unit Data
                          Monarch       Regal
Direct materials          $208        $584

Direct labor hours         1.5          3.5

Machine hours             8.0          4.0

Units produced          22,000       4,000

Direct labor cost is $12 per hour,

and the machine usage cost is $18 per hour.

Manufacturing overhead costs were estimated at $4,800,000 and were allocated on the basis of machine hours.

Martin Alecks, the new company controller, suggested that an activity-based costing analysis first be run to get a better picture of the true manufacturing cost. The following data were collected:

Activity Center
Cost Driver
Traceable Costs

Soldering
Number of solder joints $ 942,000

Shipments
Number of shipments 860,000

Quality control
Number of inspections 1,240,000

Purchase orders
Number of orders 950,400

Machining
Machine hours 57,600

Machine setups
Number of setups 750,000

Total traceable costs $4,800,000

Number of Events

Activity
                 Monarch         Regal       Total

Soldering     1,185,000      385,000    1,570,000

Shipments        16,200          3,800       20,000

Quality control 56,200 21,300 77,500

Purchase orders 80,100 109,980 190,080

Machining 176,000 16,000 192,000

Machine setups 16,000 14,000 30,000

Selling, general, and administrative expenses per unit sold are $265.00 for Monarch and $244.50 for Regal.

REQUIRED:
A. Calculate the manufacturing cost per unit for Monarch and Regal under:

1. A traditional costing system

2. The ABC system

B. Explain the differences in manufacturing cost per unit calculated in part (A).

C.Calculate the operating profit per unit for Monarch and Regal under:

1. A traditional costing system

2. The ABC system

D.Should Applewood concentrate its marketing efforts on Monarch or on Regal?

Explain how the use of ABC affects your recommendation.

Reference no: EM131173533

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