Question

In: Accounting

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

Baird Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Baird 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 $ 20.00 $ 7.00
Direct labor 28.00 9.00
Category Estimated Cost Cost Driver Use of Cost Driver
Unit level $ 25,960 Number of units ZM: 2,400 units; DS: 9,400 units
Batch level 52,000 Number of setups ZM: 26 setups; DS: 26 setups
Product level 90,000 Number of TV commercials ZM: 15; DS: 10
Facility level 180,000 Number of machine hours ZM: 300 hours; DS: 600 hours
Total $ 347,960

Baird’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 $118 and for DS is $77. If Baird 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 Baird can sell as many cameras as it can produce by pricing Model ZM at $113 and Model DS at $34. Baird 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

ABC Costing
Category Overhead
(A)
Cost Driver Quantity (B) Allocation Rate A/B)
Unit Level $25,960.00 11800 No. of Unit $2.20 No. of Unit
Batch Level $52,000.00 52 No. of Setup $1,000.00 No. of Setup
Product Level $90,000.00 25 No. of TV Commercial $3,600.00 No. of TV Commercial
Facility Level $180,000.00 900 No. of Machne Hour $200.00 No. of Machne Hour
Total $347,960.00
Assigning Overhead Cost to Product Model
Using ABC Method
Model ZM Model DS
Activity Based Overhead Rate
(A)
Cost Driver Incurred
(B)
OH Allocated
(AXB)
Cost Driver Incurred
( C)
OH Allocated
(AXC)
No. of Unit $2.20 per setups 2400 Per Unit $5,280.00 9400 Per Unit $20,680.00
No. of Setup $1,000.00 per parts 26 Per Setup $26,000.00 26 Per Setup $26,000.00
No. of TV Commercial $3,600.00 per hour 15 Per TV Commercial $54,000.00 10 Per TV Commercial $36,000.00
No. of Machne Hour $200.00 per hour 300 Per Machne Hour $60,000.00 600 Per Machne Hour $120,000.00
Total Overhead (i) $145,280.00 $202,680.00
No. Of Units (ii) 2400 9400
Overhead per Unit (i/ii) $60.53 $21.56
Calculation of Unit Product Cost
Under ABC Costing
Model ZM Model DS
Direct Material $20.00 $7.00
Direct Labour $28.00 $9.00
Applied Overhead $60.53 $21.56
Product Cost per Unit $108.53 $37.56
Part-2
Model ZM Model DS
Market Price per Unit $118.00 $77.00
Less: Product Cost Per Unit $108.53 $37.56
Profit (Loss) per Unit $9.47 $39.44
Part-3
Model ZM Model DS
Target Sellng Price (a) $113.00 $34.00
Less: Profit Margin (aX30%) $33.90 $10.20
Target Cost per Unit $79.10 $23.80

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