In: Accounting
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
Compute the cost per unit for each product.
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?
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?
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.