Efferson Electronics manufactures two large-screen television models. The 32-inc

Question

Efferson Electronics manufactures two large-screen television models. The 32-inch flat-panel LCD model has been in production since 2009 and sells for $1,000. The company introduced a 42-inch plasma HDTV in 2011; it sells for $1,180. The company’s income statement for the current year follows. Based on these results, management has decided to concentrate the company’s marketing efforts on the plasma HDTV model and begin to phase out the LCD model.

Efferson Electronics Income Statement For the Year Ended December 31 32" LCD 42" Plasma Total Sales Revenue Cost of goods sold Gross margin Selling and administrative expenses Operating income Units produced and sold Operating income per unit sold $24,000,000 $ 4,720,000 $28,720,000 3,156,400 16,908,400 1,563,600 11,811,600 998.000 6,363,000 565,600 5,448,600 13.752,000 10,248,000 5.365.000 4,883,000 4,000 $203.46 $ 141.40 24,000 The unit costs for the two television models are as follows: 42" Plasma 32" LCD $344 Direct materials Direct labor Manufacturing overhead Total unit cost $642 42 105 $789 20 209 $573 Jon Daniel, Efferson's controller, just attended a seminar on activity-based costing and believes the company should implement such a system. He has gathered the following annual information to explore the possibility

Explanation / Answer

Activity Rate for each cost pool is:

Overhead cost to each of the products using ABC is:

Cost Pool Activity Rate Soldering 974,640/1,572,000 0.62 per joint Shipping 1,490,100/20,000 74.51 per shipment Quality Control 1,174,500/78,300 15.00 per inspection Purchasing 975,000/195,000 5.00 per purchase order Machining 72,160/176,000 0.41 per machine hour Setups 750,000/30,000 25.00 per setup

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