Schultz Electronics manufactures two ultra high-definition television models: th

Question

Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $ 1,630, and a new model, the Majestic, which sells for $ 1,270. The production cost computed per unit under traditional costing for each model in 2020 was as follows.

Traditional Costing

Royale

Majestic

$ 650

$ 400

120

100

258

215

$ 1,028

$ 715

In 2020, 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 estimated manufacturing overhead of $ 8,603,900 by the total direct labor hours (200,000) for the two models.

Under traditional costing, the gross profit on the models was Royale $ 602 ($ 1,630 – $ 1,028) and Majestic $ 555 ($ 1,270 – $ 715). 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, 2020.

Activity
Cost Pools

Cost Drivers

Estimated
Overhead

Estimated Use of
Cost Drivers

Activity-Based
Overhead Rate

The cost drivers used for each product were:

Cost Drivers

Royale

Majestic

Total

(a)

Assign the total 2020 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

$

$

$

$

Traditional Costing

Royale

Majestic

Direct materials

$ 650

$ 400

Direct labor ($20 per hour)

120

100

Manufacturing overhead ($ 43 per DLH)

258

215

Total per unit cost

$ 1,028

$ 715

Explanation / Answer

working note:

cost assignment to products:

solution:

royale majestic purchase orders (17,000*$35)=>$595,000 (22,400*$35)=>$784,000 machine setups (5,000*$54)=>$270,000 (13,300*$54)=>$718,200 machining (75,000*$45)=>$3,375,000 (45,300*$45)=>$2,038,500 inspections (11,000*$28)=>$308,000 (18,400*$28)=>$515,200 total assigned costs $4,548,000 $4,055,900 cost per unit ($4,548,000/25,000units)=>$181.92 ($4,055,900/10,000units)=>$405.59

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