Question

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1000-unit batches of brass, chrome and white faucets, respectively. The following additional data apply:
BRASS CHROME WHITE
Projected sales in units 30,000 50,000 40,000
Per unit data: Selling price $40 $20 $30
Direct materials $8 $4 $8
Direct labor $15 $3 $9
Overhead cost based on
direct labor hours
(traditional system) $12 $3 $9
Hours per 1000-unit batch:
Direct labor hours 40 10 30
Machine hours 25 25 10
Setup hours 1.0 0.5 1.0
Inspection hours 30 20 20
Total overhead costs and activity levels for the year are estimated as follows:
Activity Overhead costs Activity levels
Direct Labor hours 2,900 hours
Machine hours 2,400 hours
Setups $465,500 95 setup hours
Inspections $405,000 2,700 inspection hours $870,500
1. Using the ABC system, for each style of faucet, compute the estimated overhead cost per unit.
2. Compute the estimated operating profit per unit.

Answer 1

Answer:

1. Using the ABC system, for each style of faucet, compute the estimated overhead cost per unit.

Brass = [(30 x $4,900) + (900 x $150)] / 30,000 units = $9.40 per unit

Chrome = [(25 x $4,900) + (1,000 x $150)] / 50,000 units = $5.45 per unit

White = [(40 x $4,900) + (800 x $150)] / 40,000 units = $7.90 per unit

2. Compute the estimated operating profit per unit.

Brass = $40 - $8 - $15 - $9.40 = $7.60

Chrome = $20 - $4 - $3 - $5.45 = $7.55

White = $30 - $8 - $9 - $7.90 = $5.10

Explanation:

cost per setup = $465,500 / 95 = $4,900 per setup hour

cost per inspection = $405,000 / 2,700 = $150 per inspection hour

                                               BRASS      CHROME     WHITE

Projected sales in units        30,000        50,000      40,000

Per unit data: Selling price     $40              $20            $30

Direct materials                        $8                 $4              $8

Direct labor                             $15                 $3              $9

Setup hours                              30                 25             40

Inspection hours                    900             1,000           800