The ABC company makes and sells three technology products: A, B, and C. It has a
ID: 2458980 • Letter: T
Question
The ABC company makes and sells three technology products: A, B, and C. It has a production plant with 17,000 square feet of floor area, consisting of machine setup (2000 square feet), machining operation (9000 square feet), assembly (4000 square feet), and inspection, packaging and shipping activities (2000 square feet). The total annual expenditure for the plant is $200,000 for depreciation, $700,000 for utilities, $20,000 for phone and travel services, $150,000 for manufacturing supports, $200,000 for procurement, and $150,000 for supervision. The labor hours and material cost required to manufacture the products are shown in table 2.1. The labor charges are $25 per hours for machine setup, $35 per hour for the machining operation, $30 per hour for assembly, and $20 per hour for inspection, packing, and shipping. The ABC Company plans to sell product A at $5,000 per unit, product B at $4,500 per unit, and product C at $4,100 per unit. All products manufactured during the year are assumed to be sold successfully. Apply the activity based costing (ABC) techniques to determine the product cost and individual gross margin for each product.Explanation / Answer
The product cost per unit and individual gross margin for each product:
Distribution of Fixed Cost:
particulars Product A Product B Product C Amount $ Amount $ Amount $ Raw Material per unit 950 430 640 Purchased components per unit 100 80 90 Outsourced service per unit 20 30 40 Direct Material cost per unit (A) 1070 540 770 Machine setup charges 2 25 50 3 25 75 4 25 100 Machining Operation 16 35 560 12 35 420 8 35 280 Assembly 4 30 120 3 30 90 2 30 60 Inspection, packing and shipping 2 20 40 2 20 40 2 20 40 Total Labor Cost per unit (B) 770 625 480 Fixed Cost per unit as below table (C) 799.21 537.33 685.38 Total Product Cost per unit (A+B+C) 2639.21 1702.33 1935.38 Unit Selling Price of product 5000 4500 4100 Gross Margin per unit of each product 2360.79 2797.67 2164.62Related Questions
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