Ultratech, Inc., manufactures several different types of printed circuit boards;
ID: 2729034 • 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 67,000 of the TV boards in 20x4 at a price of $370 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 42,000 PC boards at $700 per unit.
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 67,000 of the TV boards in 20x4 at a price of $370 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 42,000 PC boards at $700 per unit.
0 plans include the sale of 42,000 PC boards at $700 per unit 5 get a premium price for the PC board. Selling it should help overall profitability The cost-accounting system shows that the following costs apply to the PC and TV boards Andrew Fulton, Ultratech's controller, believes that before the management group proce 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 direct labor, machine time, and overhead costs in the old standard cost figures $ 900,000 Number of setups 0 $ 2,500,000 8,200,000 Number of parts Number of parts 0 2Explanation / Answer
1.
a. Provides management with a more thorough understanding of complex product costs and product profitability for improved resource management and pricing decisions.
b. Allows management to focus on value-added and non -value-added activities, so that non -value-added activities can be controlled or eliminated, thus streamlining production processes.
c. Highlights the relationship between activities and identifies opportunities to reduce costs (i.e., designing products with fewer parts in order to reduce the cost of the manufacturing process).
d. Provides a more appropriate means of charging overhead costs to products.
2.
Pre-determined overhead rate for allocation of variable overheads = Expected variable overhead/Estimated direct labor hours = $19,665,450/259,875 = $75.67 per direct labor hours
PC Board
TV Board
Selling price
$ 700.00
$ 370.00
Direct material
$ 221.00
$ 141.00
Direct labor
(3.5 hour*$32)
$ 112.00
(1.5 hour*$32)
$ 48.00
Machine time cost
(1.5 hour*$24)
$ 36.00
(1.5 hour*$24)
$ 36.00
Material handling charges
($221*10%)
$ 22.10
($141*10%)
$ 14.10
Variable overhead
(3.5 hour*$75.67)
$ 264.85
(1.5 hour*$75.67)
$ 113.51
Variable cost per unit
$ 655.95
$ 352.61
Contribution margin per unit
$ 44.05
$ 17.40
Expected units to be sold
42,000
67,000
Total Contribution margin
$ 1,850,310.00
$ 1,165,465.00
3.
Budgeted cost
Amount
Cost driver
Budgeted activity
Activity rate
PC Board
TV Board
Number of activity
Allocated cost
Number of activity
Allocated cost
Procurement
$ 820,000
Number of parts
4,571,700
$ 0.18
59
$ 10.62
28
$ 5.04
Production scheduling
$ 450,000
Number of boards
114,450
$ 3.93
1
$ 3.93
1
$ 3.93
Packaging and shipping
$ 900,000
Number of boards
114,450
$ 7.86
1
$ 7.86
1
$ 7.86
Machine Setup
$ 900,000
Number of Setups
501,900
$ 1.79
5
$ 8.95
4
$ 7.16
Hazardous waste disposal
$ 100,000
Pounds of waste
30,681
$ 3.26
0.6
$ 1.96
0.06
$ 0.20
Quality Control
$ 1,132,000
Number of inspections
387,450
$ 2.92
4
$ 11.68
3
$ 8.76
General Supplies
$ 138,000
Number of boards
114,450
$ 1.21
1
$ 1.21
1
$ 1.21
Machine insertion
$ 2,500,000
Number of parts
3,333,000
$ 0.75
38
$ 28.50
27
$ 20.25
Manual Soldering
$ 8,200,000
Number of parts
1,150,000
$ 7.13
21
$ 149.73
1
$ 7.13
Wave-Soldering
$ 274,000
Number of boards
114,450
$ 2.39
1
$ 2.39
1
$ 2.39
$ 15,414,000
$ 226.83
$ 63.93
PC Board
TV Board
Selling price
$ 700.00
$ 370.00
Direct material
$ 221.00
$ 141.00
Variale overhead
$ 226.83
$ 63.93
Variable cost per unit
$ 447.83
$ 204.93
Contribution margin per unit
$ 252.17
$ 165.07
Expected units to be sold
42,000
67,000
Total Contribution margin
$ 10,591,140.00
$ 11,059,984.80
PC Board
TV Board
Selling price
$ 700.00
$ 370.00
Direct material
$ 221.00
$ 141.00
Direct labor
(3.5 hour*$32)
$ 112.00
(1.5 hour*$32)
$ 48.00
Machine time cost
(1.5 hour*$24)
$ 36.00
(1.5 hour*$24)
$ 36.00
Material handling charges
($221*10%)
$ 22.10
($141*10%)
$ 14.10
Variable overhead
(3.5 hour*$75.67)
$ 264.85
(1.5 hour*$75.67)
$ 113.51
Variable cost per unit
$ 655.95
$ 352.61
Contribution margin per unit
$ 44.05
$ 17.40
Expected units to be sold
42,000
67,000
Total Contribution margin
$ 1,850,310.00
$ 1,165,465.00
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