Problem 17-2A (HELP PLEASE) Schultz Electronics manufactures two ultra high-defi
ID: 2549273 • Letter: P
Question
Problem 17-2A (HELP PLEASE)
Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,480, and a new model, the Majestic, which sells for $1,270. The production cost computed per unit under traditional costing for each model in 2017 was as follows.
Traditional Costing
Royale
Majestic
$600
$410
120
100
258
215
$978
$725
In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $43 per direct labor hour was determined by dividing total expected manufacturing overhead of $8,595,000 by the total direct labor hours (200,000) for the two models.
Under traditional costing, the gross profit on the models was Royale $502 ($1,480 – $978) and Majestic $545 ($1,270 – $725). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model.
Before finalizing its decision, management asks Schultz’s controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017.
Activity
Cost Pools
Cost Drivers
Estimated
Overhead
Expected Use of
Cost Drivers
Activity-Based
Overhead Rate
$30/inspection
The cost drivers used for each product were:
Cost Drivers
Royale
Majestic
Total
Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.)
Royale
Majestic
Calculate cost per unit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)
Royale
Majestic
Calculate gross profit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)
Royale
Majestic
Traditional Costing
Royale
Majestic
Direct materials$600
$410
Direct labor ($20 per hour)120
100
Manufacturing overhead ($43 per DLH)258
215
Total per unit cost$978
$725
Explanation / Answer
1.Assignment of overhead costs :
For Royale:
Purchase orders = 16900*33 =$557700
Machine setups = 5050*52= $262600
Machine hours = 74400*45=$3348000
Inspection = 11000*30 =$330000
Total costs = $ 4498300
Costs per unit =$179.932
For Majestic:
Total costs = 8595000 - 4498300= $40,96,700
Cost per unit = $409.67
2.Cost per unit under ABC for Royale = 720+179.932 $899.932
Cost per unit under ABC for Majestic = 510+ 409.67 = $919.67
3.
Gross profit for Royale =1480-899.932=$580.068
Gross profit for Majestic= 1270-919.67 =$350.33
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