Reference no: EM132552467

Irion Securities produces two types of fire proof units: Deluxe and Ultra. The assignment basis for support costs has traditionally been direct labour dollars. For 2018, they compiled the following data for the two products:

                                                            Deluxe                  Ultra

Sales units                                               $50,000             $400,000

Sales price per unit                                      $650.00            $475.00

Direct material and labor costs per unit            $180.00             $130.00

Manufacturing support costs per unit                     $ 80.00             $120.00

Last year, Orion Securities purchased an expensive robotics system to allow for more products features in the deluxe product line. The CFO suggested that an 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 2018:

Activity                Cost Driver                Cost               Total               Deluxe              Ultra

Setups              # of setups          $ 500,000.          500              400                 100

Machine-related   # of machine hours   $44,000,000   600,000        300,000          300,000

Packing                    # of shipments      $ 5,000,000    250,000         50,000         200,000

(N.B. - # = number)

Using the activity-based costing data presented above:

Question 1. Compute the cost-driver rate for each overhead activity.

Question 2. Compute the manufacturing overhead cost per unit for each type of entry door.

Question 3. Compute the total cost to manufacture one unit of each type of entry door.

Question 4. How could switching to ABC be beneficial to the company