Ultratech, Inc., manufactures several different types of printed circuit boards;

ID: 2420020 • Letter: U

Question

Ultratech, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company’s sales. The first of these boards, a television circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and price-sensitive. Ultratech plans to sell 80,000 of the TV boards in 20x4 at a price of $460 per unit. The second high-volume product, a personal computer circuit board, is a recent addition to Ultratech’s product line. Because the PC board incorporates the latest technology, it can be sold at a premium price. The 20x4 plans include the sale of 55,000 PC boards at $775 per unit.

Ultratech’s management group is meeting to discuss how to spend the sales and promotion dollars for 20x4. The sales manager believes that the market share for the TV board could be expanded by concentrating Ultratech’s promotional efforts in this area. In response to this suggestion, the production manager said, “Why don’t you go after a bigger market for the PC board? The cost sheets that I get show that the contribution from the PC board is more than double the contribution from the TV board. I know we get a premium price for the PC board. Selling it should help overall profitability.”

Variable manufacturing overhead is applied on the basis of direct-labor hours. For 20x4, variable overhead is budgeted at $28,314,000, and direct-labor hours are estimated at 357,500. The hourly rates for machine time and direct labor are $28 and $36, respectively. The company applies a material-handling charge at 10 percent of material cost. This material-handling charge is not included in variable manufacturing overhead. Total 20x4 expenditures for direct material are budgeted at $25,740,000.

Andrew Fulton, Ultratech’s controller, believes that before the management group proceeds with the discussion about allocating sales and promotional dollars to individual products, it might be worthwhile to look at these products on the basis of the activities involved in their production. Fulton has prepared the following schedule to help the management group understand this concept.

“Using this information,” Fulton explained, “we can calculate an activity-based cost for each TV board and each PC board and then compare it to the standard cost we have been using. The only cost that remains the same for both cost methods is the cost of direct material. The cost drivers will replace the direct labor, machine time, and overhead costs in the old standard cost figures.”

On the basis of Ultratech’s unit cost data given in the problem, calculate the total amount that each of the two product lines will contribute toward covering fixed costs and profit in 20x4. (Round your intermediate calculations to 2 decimal places.)

Using activity-based costing, calculate the total amount that each of the two product lines will contribute toward covering fixed costs and profit in 20x4. (Round your intermediate calculations to 2 decimal places.)

Explanation / Answer

Answer 2: Statement of contribution PC Board TV Board Number of units sold 55000 80000 Selling price per unit ($) 775 460 Total selling price ($) 42625000 36800000 Less: variable cost Direct material 13420000 12320000 Direct Labour 5940000 5760000 Machine hour cost 1540000 1120000 Variable overhead 14410000 13904000 35310000 33104000 Total Contribution ($) 7315000 3696000 Working Notes: a) Direct labour cost PC Board TV Board Units produced and sold 55000 80000 Direct labour hour per unit 3 2 total direct labour hours required 165000 160000 Direct labour cost per hour 36 36 Total direct labour cost ($) 5940000 5760000 b) Machine Hour cost PC Board TV Board Units produced and sold 55000 80000 Machine hour per unit 1 0.5 total machine hours required 55000 40000 cost per machine hour 28 28 Total machine hour cost ($) 1540000 1120000 c) Direct Material cost PC Board TV Board Units produced and sold 55000 80000 Direct material cost per unit ($) 244 154 Total direct material cost ($) 13420000 12320000 Material Handling cost (10% of above) 1342000 1232000 d) Budgeted variable overhead($) 28314000 Budgeted labour hours 357500 Overhead application rate per labour hour ($) 79.20 e) Variable overhead cost PC Board TV Board Direct labour hours used 165000 160000 Variable overhead rate per direct labour hour ($) 79.2 79.2 Variable overhead applied ($) 13068000 12672000 Material handling charge ($) 1342000 1232000 Total variable overhead ($) 14410000 13904000 Answer 3) Budgeted cost Total amount ($) Cost driver Budgeted annual activity for cosr drivers Overhead rate per unit of cost drivers ($) Procurement 950000 number of parts 8750500 0.11 Production scheduling 515000 number of boards 148500 3.47 packaging and shipping 1030000 number of boards 148500 6.94 machine set up 952000 number of set ups 803000 1.19 waste disposal 126000 pounds of waste 30360 4.15 quality control 1210000 number of inspections 209000 5.79 general supplies 177000 number of boards 148500 1.19 Machine insertion 3150000 number of parts 5878000 0.54 mannual insertion 9500000 number of parts 2364000 4.02 wave soldering 339000 number of boards 148500 2.28 PC board TV board required per unit Units produced Total requirement of activity required per unit Units produced Total requirement of activity Machine insertions 51 55000 2805000 40 80000 3200000 mannual insertions 34 55000 1870000 1 80000 80000 Number of parts 85 55000 4675000 41 80000 3280000 machine sets ups 6 55000 330000 5 80000 400000 waste disposal 0.4 55000 22000 0.07 80000 5600 inspections 2 55000 110000 1 80000 80000 Oveahead cost allocated to TV board as per ABC Budgeted cost Overhead rate per unit of cost drivers ($) Cost driver Total requirement of Activites Overhead cost allocated Procurement 0.11 number of parts 3280000 360800 Production scheduling 3.47 number of boards 80000 277600 packaging and shipping 6.94 number of boards 80000 555200 machine set up 1.19 number of set ups 400000 476000 waste disposal 4.15 pounds of waste 5600 23240 quality control 5.79 number of inspections 80000 463200 general supplies 1.19 number of boards 80000 95200 Machine insertion 0.54 number of parts 3200000 1728000 mannual insertion 4.02 number of parts 80000 321600 wave soldering 2.28 number of boards 80000 182400 Total 4483240 Oveahead cost allocated to PC board as per ABC Budgeted cost Overhead rate per unit of cost drivers ($) Cost driver Total requirement of Activites Overhead cost allocated Procurement 0.11 number of parts 4675000 514250 Production scheduling 3.47 number of boards 55000 190850 packaging and shipping 6.94 number of boards 55000 381700 machine set up 1.19 number of set ups 330000 392700 waste disposal 4.15 pounds of waste 22000 91300 quality control 5.79 number of inspections 110000 636900 general supplies 1.19 number of boards 55000 65450 Machine insertion 0.54 number of parts 2805000 1514700 mannual insertion 4.02 number of parts 1870000 7517400 wave soldering 2.28 number of boards 55000 125400 Total 11430650 Statement of contribution PC Board TV Board Number of units sold 55000 80000 Selling price per unit ($) 775 460 Total selling price ($) 42625000 36800000 Less: variable cost Direct material 13420000 12320000 Material Handling 1342000 1232000 Allocated overhead cost as per ABC 11430650 4483240 26192650 18035240 Total Contribution ($) 16432350 18764760

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Ultratech, Inc., manufactures several different types of printed circuit boards;

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