Question
In: Accounting
Executive Images Corporation produces two types of wooden bookends: plain and hand-carved. The following information about...
Executive Images Corporation produces two types of wooden bookends: plain and hand-carved. The following information about the production process is available:
|
Plain |
Hand-Carved |
|
|
Number produced |
120,000 |
75,000 |
|
Machine hours |
95,000 |
25,000 |
|
Inspection hours |
7,000 |
35,000 |
|
Revenues |
$4,800,000 |
$4,400,000 |
|
Direct costs |
$3,800,000 |
$3,100,000 |
Total factory overhead is $1,200,000. Of this overhead, $500,000 is related to utilities (cost driver = machine hours) and the remainder is related to quality control (cost driver = inspection hours).
A) If the Corporation uses ABC allocation method, what is the profit per unit of “Plain” bookend? Per unit of “Hand-Carved” bookend?
B) If the Corporation uses traditional method and allocates the factory overhead using machine hours, what is the profit per unit for each product?
Please show work and all equations used.
Solutions
Expert Solution
| Computation of Activity Rate | ||||||
| ACTIVITY | OVERHEAD COST | / | ACTIVITY | = | ACTIVITY RATE | |
| Utilities | $500,000.00 | / | 120000 | = | $4.17 | Per Machine hour |
| (95000+25000) | ||||||
| Qualty Control | $700,000.00 | / | 42000 | = | $16.67 | Per Inspection Hour |
| (35000+7000) | ||||||
| Computation of Profit - As per ABC-Executive Images Corporation | ||
| Plan | Hand Carved | |
| Revenue (a) | $4,800,000.00 | $4,400,000.00 |
| Total Cost | ||
| Direct Cost | $3,800,000.00 | $3,100,000.00 |
| Overhead Cost | $7,622.00 | $33,578.00 |
| Utilities | $396,150.00 | $104,250.00 |
| (95000*4.17) | (25000*4.17) | |
| Quality Control | $116,690.00 | $583,450.00 |
| (7000*16.67) | (35000*16.67) | |
| Total Cost (b) | $4,320,462.00 | $3,821,278.00 |
| Profit (c=a-b) | $479,538.00 | $578,722.00 |
| No. of Unit (d) | 120000 | 75000 |
| Profit per Unit (c/d) | $4.00 | $7.72 |
| Predetermined Overhead Rate = Estimated Overhead/ Machine Hour |
| (1200000/120000)=$10 per machine Hour |
| Computation of Profit - As per Tradition-Executive Images Corporation | ||
| Plan | Hand Carved | |
| Revenue (a) | $4,800,000.00 | $4,400,000.00 |
| Total Cost | ||
| Direct Cost | $3,800,000.00 | $3,100,000.00 |
| Overhead Cost | $950,000.00 | $250,000.00 |
| (95000*10) | (25000*10) | |
| Total Cost (b) | $4,750,000.00 | $3,350,000.00 |
| Profit (c=a-b) | $50,000.00 | $1,050,000.00 |
| No. of Unit (d) | 120000 | 75000 |
| Profit per Unit (c/d) | $0.42 | $14.00 |
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