Question

In: Accounting

Perez Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS...

Perez Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Perez uses an activity-based costing system. The following are the relevant cost data for the previous month:

   

Direct Cost per Unit Model ZM Model DS
Direct materials $ 20.9 $ 7.0
Direct labor 29.8 9.0

   

Category Estimated Cost Cost Driver Use of Cost Driver
Unit level $ 25,960 Number of units ZM: 2,350 units; DS: 9,450 units
Batch level 50,960 Number of setups ZM: 26 setups; DS: 26 setups
Product level 90,000 Number of TV commercials ZM: 14; DS: 11
Facility level 180,000 Number of machine hours ZM: 300 hours; DS: 600 hours
Total $ 346,920


Perez’s facility has the capacity to operate 2,700 machine hours per month.

   
Required

  1. Compute the cost per unit for each product.

  2. The current market price for products comparable to Model ZM is $119 and for DS is $66. If Perez sold all of its products at the market prices, what was its profit or loss for the previous month?

  3. A market expert believes that Perez can sell as many cameras as it can produce by pricing Model ZM at $114 and Model DS at $34. Perez would like to use those estimates as its target prices and have a profit margin of 30 percent of target prices. What is the target cost for each product?

Solutions

Expert Solution

1.

Product Direct materials Direct labor Allocated Overhead Total Cost
Model ZM 20.9 29.8 60.02 110.72
Model DS 7.0 9.0 21.79 37.79

Working:

Category Estimated Cost $ Cost Driver Usage Allocation Rate $ Model ZM Model DS
Cost Driver Cost $ Cost Driver Cost $
Unit level 25960 11800 2.20 2350 5170 9450 20790
Batch level 50960 52 980.00 26 25480 26 25480
Product level 90000 25 3600.00 14 50400 11 39600
Facility level 180000 900 200.00 300 60000 600 120000
Total $ 346920 141050 205870
Number of units produced 2350 9450
Allocated overhead cost per unit $ 60.02 21.79

Note: In the absence of specific instructions, amounts have been rounded off to 2 decimal places. Kindly round off as required.

2.

Model ZM Model DS
Sales price per unit $ 119.00 66.00
Cost per unit 110.72 37.79
Gross margin per unit $ 8.28 28.21
Number of units sold 2350 9450
Profit (Loss) $ 19458 266585

Note: Final answers are rounded off to the nearest whole dollar. Kindly round off as required.

3.

Model ZM Model DS
Target price per unit $ 114.00 34.00
Less Profit margin 30% 34.20 10.20
Target cost per unit $ 79.80 23.80

Note: In the absence of specific instructions, amounts have been rounded off to 2 decimal places. Kindly round off as required.


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