Owens, Inc., manufactures only two products, Medium (42-inch) and Large (63-inch

ID: 2427899 • Letter: O

Question

Owens, Inc., manufactures only two products, Medium (42-inch) and Large (63-inch) TVs. To generate adequate profit and cover its expenses throughout the value chain, Owens prices its TVs at 300% of manufacturing cost. The company is concerned because the Large model is facing severe pricing competition, whereas the Medium model is the low-price leader in the market. The CEO questions whether the cost numbers generated by the accounting system are correct. noel is the low-price leader igeopetition, whereas

Explanation / Answer

Part 1

Manufacturing overhead cost

Direct Labor hours

Plantwide overhead rate

$747,000

24900

$ 30

Part 1 continued

Manufacturing cost

Medium (42 inch)

Large (63 inch)

Direct materials

660000

1260000

Direct labour

219000

404000

Manufacturing overhead

300000

447000

Total manufacturing cost

1179000

2111000

Number of units produced

3000

5000

Cost per unit

393

422.2

Part 2

Activity overhead cost

Cost driver

Activity allocation rate

Material handling cost

153000

510

300

Machine processing cost

504000

42000

Packaging

90000

10000

Part 2 continued