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