Armstrong Company produces a variety of bicycles. One of its plants produces two
ID: 2409645 • Letter: A
Question
Armstrong Company produces a variety of bicycles. One of its plants produces two bicycles: a mountain model and a racing model. At the beginning of the year, the following data were prepared for this plant:
Mountain
Racing
Quantity
250,000
125,000
Selling Price
$1,200
$1,000
Unit Prime Cost
$ 400
$ 500
In addition, the following information was provided so that overhead costs could be assigned to each product:
Activity Name
Activity Driver
Activity Cost
Racing
Mountain
Machining
Machine hours
$20,000,000
250,000
250,000
Engineering
Engineering hours
$ 8,000,000
75,000
50,000
Packing
Packing orders
$ 3,500,000
50,000
125,000
Armstrong Company uses activity-based costing to calculate product costs.
Calculate the per unit product cost for a mountain bike.
Calculate the per unit product cost for a racing bike.
Assume Armstrong Company adds 40% to the cost of a mountain bike and 35% to the
cost of a racing bike obtain the selling prices. Calculate the selling prices for a mountain bike and a racing bike.
Mountain
Racing
Quantity
250,000
125,000
Selling Price
$1,200
$1,000
Unit Prime Cost
$ 400
$ 500
Explanation / Answer
RACING BIKE
Machining = $20,000,000 / (250,000 + 250,000) = $40 MHrs * 250,000
MH = $10,000,000
Engineering = $8,000,000 / (75,000 + 50,000) = $64 EHrs * 75,000
EH =$4,800,000
Packing = $3,500,000 / (50,000 + 125,000) = $20 PO * 50,000
PO =$1,000,000
MOUNTAIN BIKE
Machining = $20,000,000 / (250,000 + 250,000) = $40 MHrs * 250,000
MH = $10,000,000
Engineering = $8,000,000 / (75,000 + 50,000) = $64 EHrs * 50,000
EH =$3,200,000
Packing = $3,500,000 / (50,000 + 125,000) = $20 PO * 125,000
PO =$2,500,000
1) Per unit product cost for a mountain bike = $ 400 + $ 40 + $ 64 + $ 20 = $524
2)Per unit product cost for a racing bike = $ 500 + $ 40 + $ 64 + $ 20 = $624
3) Total cost of Mountain Bike = [($400 *250,000) + ($10,000,000 + $3,200,000 + $2,500,000)]
= 115,700,000
Add- 40% of cost = 46,280,000
Total sale = 115700000 + 46280000 = 161,980,000
Selling price per unit = 161980000 / 250000 = 647.92
Total cost of Racing Bike = [($400 *250,000) + ($10,000,000 + $4,800,000 + $1,000,000)]
= 115,800,000
Add- 35% of cost = 40,530,000
Total sale = 115800000 + 40530000 = 156,330,000
Selling price per unit = 156,330,000 / 125000 = 1250.64
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