Use the following information to answer questions g-1O. -based costing (ABC) sys
ID: 2549072 • Letter: U
Question
Use the following information to answer questions g-1O. -based costing (ABC) system because the managers suspect that their lls two products Standard and Deluxe. A company is considering the adoption of an activity traditional costing system distorts the product costs. This company produces and se Their traditional costing system uses machi production managers ne hours (MHs) as the allocation base for manufacturing overhead cost. The decided that major activities are Assembly, Machine setups, and Parts administration and determined the costs for each activity. They also identified how many MHs, setups, and parts each product requires Additional information: Deluxe Standard $120 per unit 150 per unit Price Costs: 36 Direct materials (DM) Direct labor (DL) 32 per unit $15 per unit S36 per unit S25 per unit a5 100,000 units 200,000 MHs 200 parts 250,000 units Units produced Activity 100,000 MHs Assembly (MHs) Machine setups (setups) Parts administration (part types) 400 setups 100 setups 200 parts Overhead a cou 1 4 2 co. $1,200,000 $600,000 410 Machine setups Parts administration ,100000 9 Compared with the unit product cost calculated by the ABC system, what is the distortion (difference) created by 3 the traditional costing system fof Delitye Product? A. Under the traditional costing system, the product is overcosted by B Under the traditional costing system, the product is undercosted by C. Under the traditional costing system, the product is overcosted by D. Under the traditional costing system, the product is undercosted by E. None of the above S 0.30 per unit. S 0.30 per unit 0.12 per unit S 0.12 per unit. ,000 500,000 515.3 ist cos and B.Toal costs of The company is assumed to spend equal money on customer relations among its two customer relation for these two customers are $10,000. Customer A placed an order as below. Using the ABC system, the customer margin of customer A is (choose the closest answer: 10 100 units 200 units Deluxe +1l, 750 $27,020 $38,872 $38,920 $16,972 X $21,972 2oK100 12,000 2So,poeExplanation / Answer
10) Overhead cost allocated to Standard = Assembly+Machine Setups+Parts Administration
= ($4*100,000 Mhs)+($1,200*100 setups)+($750*200 parts)
= $400,000+$120,000+$150,000 = $670,000
Overhead cost per unit of Standard = $670,000/250,000 units = $2.68 per unit
Overhead cost allocated to Deluxe = Assembly+Machine Setups+Parts Administration
= ($4*200,000 Mhs)+($1,200*400 setups)+($750*200 parts)
= $800,000+$480,000+$150,000 = $1,430,000
Overhead cost per unit of Deluxe = $1,430,000/100,000 units = $14.30 per unit
Total Cost per unit of standard = Direct Materials+Direct Labor+Overhead cost
= $32+$15+$2.68 = $49.68 per unit
Profit Margin per unit of Standard (except customer cost) = $120 - $49.68 = $70.32 per unit
Total Cost per unit of Deluxe = Direct Materials+Direct Labor+Overhead cost
= $36+$25+$14.30 = $75.30 per unit
Profit Margin per unit of Deluxe (except customer cost) = $150 - $75.30 = $74.70 per unit
As the customer result cost is equally spended for 2 customers, cost of $10,000 wiil be allocated equally to both customers (i.e. $5,000 for Customer A and $5,000 for Customer B)
Profit Margin from Customer A = Standard Margin+Deluxe Margin-Customer Relation cost
= (100 units*$70.32)+(200 units*$74.70)-$5,000
= $7,032+$14,940-$5,000 = $16,972
Hence the customer margin of customer A is $16,972. Therefore the correct answer is D) $16,972