[kballard]

I have a homework assignment that has about 10 of these type of problems. I just need help on one of them in order to figure out the rest. The power points/book does not seem to help me. I have gotten this far, and am now stumped on part b and c. I just need a step-by step instruction as to how I go about this. Thank you! :)


Problem P4-2A, Jacobson Electronics manufactures two large-screen television models: the Royale which sells for $1,600
And a new model, the Majestic, which sells for $1,300 The production cost computed per unit under traditional costing for
Each model is 2005 was as follows.
Traditional Costing Royale Majestic
Direct materials $700 $420
Direct labor($20 per hour) 120 100
Mfg overhead ($38 per DLH) 228 190
Total per unit cost $1,048 $710

In 2005, Jacobson manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead
Rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000
By the direct labor hours 200,000 for the two models.
Under traditional costing, the gross profit on the models was: Royale $552 or ($1,600 - $1,048) and Majestic
$590 or ($1,300 - $710) Because of this difference, management is considering phasing out the Royale model and increasing the
Majestic model.
Before finalizing its decision, management asks Jacobson'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, 2005.


Activity Cost Driver "Estimated
Overhead" "Expected
Use of
Cost
Drivers" "Activity-
Based
Overhead
Rate"



Purchasing Number of orders $1,200,000 40,000 $30
Machine setups Number of setups 900,000 18,000 50
Machining Machine hours 4,800,000 120,000 40
Quality control Number of inspections 700,000 28,000 25

The cost drivers used for each product were:
Cost Driver Royale Majestic Total
Purchase orders 15,000 25,000 40,000
Machine setups 5,000 13,000 18,000
Machine hours 75,000 45,000 120,000
Inspections 9,000 19,000 28,000

Instructions:
(a)Assign the total 2005 manufacturing overhead costs to the two products using activity-based costing (ABC).
Royale Majestic
Overhead Rate Rate "Drivers
Used" "Cost
Assigned" "Drivers
Used" "Cost
Assigned" "Total
Overhead"
Purchasing $30 15,000 $450,000 25,000 $750,000 $1,200,000
Machine setups $50 5,000 250,000 13,000 650,000 $900,000
Machining $40 75,000 3,000,000 45,000 1,800,000 $4,800,000
Quality control $25 9,000 225,000 19,000 475,000 $700,000
Total assigned costs $3,925,000 $3,675,000 $7,600,000
Units produced 25,000 10,000
Cost per unit $157.00 $367.50


(b) What was the cost per unit and gross profit of each model using ABC costing?

Royale Majestic
Label Amount Amount
Label Amount Amount
Label Amount Amount
Total cost per unit Formula Formula

(c) Are management's future plans for the two models sound? Explain the block below.

[morgaine300]

You are only stumped on (b) because you spent so much time off figuring the overhead that you forgot to look back at the beginning of the problem. It's almost done for you already. Frequently I see people lose track of what was going on in these long problems.

The problem already gave you the costs per unit for the traditional costing, including direct material, direct labor and overhead.

Just just figured out new overhead costs per unit. All you have to do is replace the overhead with the ABC version of it and you have your total costs per unit.

And gross profit is still the sales price less the cost, and they gave you the sales price.

You need to see the answer to b before attempting c.