ls an aggressive expansion of either consulting service desirable? Briefly discu
ID: 2554973 • Letter: L
Question
ls an aggressive expansion of either consulting service desirable? Briefly discuss 5 I Activity-based c Term oroduced for 10 years anet sells for $910, and the Zodiac, a new model x.nich st 39 Electronics Company (EC) manufactures two large-screen television models, t e Novelle, which has statement for the yesr just ended, presented below, a decloior ns as the ncome steatr just ended, presented below, a as 86 TEC's marketin g resources on the Zodiac model and to begin to phase ost t Territory Electronics Company Income statement Total $24660000 16256000 $ 8404000 Zodiac Sales Cost of goods sold Gross margin Selling and administrative expenses Net profit Units produced and sold Net profit per unit sold $4640000 3 232000 $1408000 980000 S 428000 4000 $ 107.00 Novelle $20020000 13024000 $ 6996000 5700000 S 1296000 6680000 S 1724000 22000 S 58.91 The unit costs for the Zodiac and Novelle models are as follows: Zodiac Novelle $655 Direct material Direct labour: $363 49 Zodiac (3.5 hr x $14) Novelle (1.5 hr x $14) 21 208 $592 104 Manufacturing overhead Cost per unit S808 was applied on the basis of machine hours at a predetermined rate of $26 per hour
Explanation / Answer
Solution 1:
Under activity based costing, different types of activites with cost associated with each activity is identfied. Then cost of each activity is allocated to different products on the basis of efforts undertaken in each products by the cost driver. Therefore in activity based costing, instead of allocating overhead on single predetermined rate, overheads are allocated on the basis of allocation rate identified for each activity.
Solution 2:
from above net profit per unit sold of zodiac model is negative though there is profit per unit of novelle model. Therefore TEC should not emphasise th Zodiac model and should not phase out from Novelle model.
Determination of activity rate for each activity & allocation of overhead - Activity Based Costing - Territory Electronics Company Activity Estimated Overhead Cost Activity Base Usage of Activity Base Activity Rate Zodiac Novelle Usage Allocated Costs Usage Allocated Costs Soldering $880,000.00 Nos of solder joints 1600000 $0.55 400000 $220,000.00 1200000 $660,000.00 Shipments $836,000.00 Nos of Shipments 19000 $44.00 3800 $167,200.00 15200 $668,800.00 Quality Control $1,170,000.00 Nos of inspections 78000 $15.00 21060 $315,900.00 56940 $854,100.00 Purchase order $1,110,000.00 Nos of orders 185000 $6.00 105450 $632,700.00 79550 $477,300.00 Machine Power $47,500.00 Machine hours 190000 $0.25 15200 $3,800.00 174800 $43,700.00 Machine Setup $948,500.00 Nos of setups 9485 $100.00 4500 $450,000.00 4985 $498,500.00 Total $4,992,000.00 $1,789,600.00 $3,202,400.00 Nos of units 4000 22000 Overhead cost per unit $447.40 $145.56Related Questions
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