The Chromosome Manufacturing Company produces two products, X and Y. The company
ID: 2337727 • Letter: T
Question
The Chromosome Manufacturing Company produces two products, X and Y. The company president, Jean Mutation, is concerned about the fierce competition in the market for product X. She notes that competitors are selling X for a price well below Chromosome's price of $13.50. At the same time, she notes that competitors are pricing product Y almost twice as high as Chromosome's price of $12.50.
Ms. Mutation has obtained the following data for a recent time period:
Product X Product Y
Number of units 11,000 3,000
Direct materials cost per unit $3.23 $3.09
Direct labor cost per unit $2.22 $2.10
Direct labor hours 10,000 3,500
Machine hours 2,100 1,800
Inspection hours 80 100
Purchase orders 10 30
Ms. Mutation has learned that overhead costs are assigned to products on the basis of direct labor hours. The overhead costs for this time period consisted of the following items:
Overhead Cost Item Amount
Inspection costs $16,200
Purchasing costs 8,000
Machine costs 49,000
Total $73,200
Using Direct labor Hours to allocate overhead costs determine the gross margin per unit for Product X. Choose the best answer from the list below.
a. $1.93
b. $3.12
c. $7.38
d. $2.43
e. $1.73
Using activity-based costing for overhead allocation, determine the gross margin per unit for Product Y. Choose best answer from list below.
a. $10.07
b. ($2.27)
c. ($5.23)
d. ($7.02)
e. $7.02
a. $1.93
b. $3.12
c. $7.38
d. $2.43
e. $1.73
Explanation / Answer
1.b.$3.12.
working:
overhead cost allocated to x based on labour hours = total overhead cost * (labour hours of x / labours hours of x and y)
=>$73,200 *(10,000 / (10000+3500))
=>$73,200 * (10,000 / 13500)
=>$54,222.22.
overhead cost per unit =$54,222.22 / 11,000 units of x
=>$4.93.
the following is calculation of gross margin:
2nd question:
C.($5.23)
first let us know the ovehead cost allocated to product Y using the ABC:
the following is the calculation of gross margin:
sale price 13.50 less: direct material (3.23) direct labour (2.22) overhead (4.93) gross margin 3.12