Question

Finch Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Finch 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	$	20.4		$	7.0
Direct labor		28.8			9.0

   

Category	Estimated Cost					Cost Driver	Use of Cost Driver
Unit level		$	25,960			Number of units	ZM: 2,450 units; DS: 9,350 units
Batch level			48,360			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		$	344,320

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

   
Required

a) Compute the cost per unit for each product.

b) The current market price for products comparable to Model ZM is $119 and for DS is $72. If Finch sold all of its products at the market prices, what was its profit or loss for the previous month?

c) A market expert believes that Finch can sell as many cameras as it can produce by pricing Model ZM at $114 and Model DS at $33. Finch 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?

(Round your answers to 2 decimal places.)​

Answer 1

a	Cost per unit calculation
	Category	Estimated cost	Cost Driver	Use of cost driver	Model ZM	Model DS
	Direct Material				20.4	7
	No. Of units				2450	9350
	Total Material cost				$49,980.00	$65,450.00
	Direct Labour				28.8	9
	No. Of units				2450	9350
	Total Labour cost				$70,560.00	$84,150.00
	Total Direct Cost				$120,540.00	$149,600.00
	Unit Level costs	$25,960.00	No of units	ZM: 2,450 units; DS: 9,350 units	$5,390.00	$20,570.00
	Batch Level Cost	$48,360.00	Number of setups	ZM: 26 setups; DS: 26 setups	$24,180.00	$24,180.00
	Product level cost	$90,000.00	Number of TV commercials	ZM: 15; DS: 10	$54,000.00	$36,000.00
	Facility Level cost	$180,000.00	Number of machine hours	ZM: 300 hours; DS: 600 hours	$60,000.00	$120,000.00
	Total Costs				$264,110.00	$350,350.00
	No Of units				2450	9350
	Cost Per unit				$107.80	$37.47
b.	Profit or loss:-
	Particulars	Model ZM	Model DS
	Selling Price	$119.00	$72.00
	No of units	2450	9350
	Total sales	$291,550.00	$673,200.00
	Total Cost	$264,110.00	$350,350.00
	Profit	$27,440.00	$322,850.00
c	Particulars	Model ZM	Model DS
	Selling Price	114	33
	Profit Margin	30%	30%
	Profit	34.2	9.9
	Cost for 30% margin	79.8	23.1