Problem 17-2A (Part Level Submission) Schultz Electronics manufactures two ultra
ID: 2565742 • Letter: P
Question
Problem 17-2A (Part Level Submission) Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,580, and a new model, the Majestic, which sells for $1,320. The production cost computed per unit under traditional costing for each model in 2017 was as follows. Traditional Costing Royale Majestic Direct materials Diect labor ($20 per hour) Manufacturing overhead ($39 per DLH) Total per unit cost $600 120 234 $954 $400 100 195 $695 In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $39 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,875,730 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $626 ($1,580 $954) and Majestic $625 ($1,320 $695). 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 Estimated Expected Use of Activity-Based Overhead Cost Drivers Cost Drivers Overhead Rate Cost Pools Purchasing Machine setups Number of setups Machining Quality controlNumber of inspections 39,400 18,230 120,400 $32/order $51/setup $41/hour Number of orders $1,260,800 929,730 4,936,400 748,800 Machine hours 28,800 $26/inspection The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders Machine setups Machine hours Inspections 16,800 4,730 74,600 10,600 22,600 13,500 45,800 18,200 39,400 18,230 120,400 28,800Explanation / Answer
overhead allocated Royale Majestic total purchase orders 537600 723200 1260800 machine setups 241230 688500 929730 machining 3058600 1877800 4936400 quality control 275600 473200 748800 total (a) 4113030 3762700 7875730 units produced(b) 25,000 10,000 OH per units c=a/b 164.52 376.27 cost per unit Royale Majestic direct materials 600.00 400.00 direct labor 120.00 100.00 overhead 164.52 376.27 total per unit cost 884.52 876.27 answer