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XYZ Manufacturing makes two models of office chairs: regular and deluxe. Summary data for the two...
XYZ Manufacturing makes two models of office chairs: regular and deluxe. Summary data for the two products showed the following:
Unit Costs Regular Deluxe
Direct materials $65.00 $105.00
Direct labour ($20 per hour) 10.00 20.00
Manufacturing overhead* 4.80 9.60
* Under the company's current costing, manufacturing overhead is allocated on the basis of direct labour-hours. The overhead for the year follows:
Materials handling $ 300,000
Setups 400,000
General factory overhead 500,000
Total $1,200,000
The following table presents the activity levels that relate to the overhead costs:
Cost Driver Regular Deluxe Total
Number of parts 600,000 900,000 1,500,000
Number of setups 75 50 125
Direct labour-hours 45,000 80,000 125,000
The market price for the regular chairs is $ 104 with expected sales of 40,000 units. The company expects to sell 25,000 deluxe chairs at a selling price of $170 per unit.
Required:
Determine the unit gross profit for the regular chair using both traditional and activity-based costing methods.
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| XYZ manufacturing | ||||
| Calculation of plant wide OH Rate | Regular | Deluxe | Total | Note |
| Total Direct Labor Hours | 45,000.00 | 80,000.00 | 125,000.00 | B |
| Total overhead | 1,200,000.00 | See A | ||
| Plant wide OH Rate | 9.60 | C=B/A | ||
| Allocated OH | 432,000.00 | 768,000.00 | 1,200,000.00 | D=C*B |
| Workings | Regular | Deluxe | Note | |
| Units sold | 40,000.00 | 25,000.00 | E | |
| Sell price | 104.00 | 170.00 | F | |
| Revenue | 4,160,000.00 | 4,250,000.00 | G=E*F | |
| Direct materials per unit | 65.00 | 105.00 | Q | |
| Direct materials cost | 2,600,000.00 | 2,625,000.00 | R=E*Q | |
| Direct labor per unit | 10.00 | 20.00 | S | |
| Direct labor cost | 400,000.00 | 500,000.00 | T=E*S | |
| Final Answer | Regular | Deluxe | Note | |
| Revenue | 4,160,000.00 | 4,250,000.00 | See G | |
| Less: | ||||
| Direct Materials | 2,600,000.00 | 2,625,000.00 | See R | |
| Direct Labor | 400,000.00 | 500,000.00 | See S | |
| Allocated OH | 432,000.00 | 768,000.00 | See D | |
| Total costs | 3,432,000.00 | 3,893,000.00 | H | |
| Gross Profit | 728,000.00 | 357,000.00 | I=G-H | |
| Gross Profit per unit | 18.20 | 14.28 | J=I/E | |
| Calculation of ABC rates for overhead | See A | K | L=A/K | |
| Activity cost pool | Activity Measure | Cost | Activity usage | ABC rates |
| Material Handling | Number of Parts | 300,000.00 | 1,500,000.00 | 0.20 |
| Setups | Number of Setups | 400,000.00 | 125.00 | 3,200.00 |
| General Factory Overhead | Direct Labor Hours | 500,000.00 | 125,000.00 | 4.00 |
| Total Cost assigned | 1,200,000.00 | |||
| Regular | See L | M | N=L*N | |
| Activity cost pool | Activity Measure | ABC Rates | Activity used | Cost assigned |
| Material Handling | Number of Parts | 0.20 | 600,000.00 | 120,000.00 |
| Machine Setup | Number of Setups | 3,200.00 | 75.00 | 240,000.00 |
| General Factory Overhead | Direct Labor Hours | 4.00 | 45,000.00 | 180,000.00 |
| Total Cost assigned | 540,000.00 | |||
| Deluxe | See L | O | P=O*L | |
| Activity cost pool | Activity Measure | ABC Rates | Activity used | Cost assigned |
| Material Handling | Number of Parts | 0.20 | 900,000.00 | 180,000.00 |
| Machine Setup | Number of Setups | 3,200.00 | 50.00 | 160,000.00 |
| General Factory Overhead | Direct Labor Hours | 4.00 | 80,000.00 | 320,000.00 |
| Total Cost assigned | 660,000.00 | |||
| Final Answer | Regular | Deluxe | Total | |
| Revenue | 4,160,000.00 | 4,250,000.00 | 8,410,000.00 | |
| Less: | ||||
| Direct Materials |
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