Q1:RR Mountain Corporation makes two types of hiking boots –
Xactive and the Pathbreaker. Data concerning these two product lines appears
below:
X-ACTIVE
DIRECT MATERIALS PER UNIT$64.80 $18.20
DIRECT LABOR-HOURS PER UNIT1.4 DLHs
PATHBREAKER
$51.00
$13.00
1.0 DLHs
SELLING PRICE PER UNIT
$127.00 $89.00
DIRECT LABOR PER UNIT
|
ESTIMATED ANNUAL PRODUCTION AND |
25,000 units 75,000 units |
The company has a traditional costing system in which
manufacturing overhead is applied to units based on direct labor-hours. Data
concerning manufacturing overhead and direct labor hours for the upcoming year
appear below:
Estimated total manufacturing overhead $ 2,200,000
Estimated total direct labor hours110,000
DLHs
Required:
1.Compute
the product margins for the X-active and the Pathbreaker products under the
company’s
traditional costing system.
2.The
company is considering replacing its traditional costing system with an
activity-based costing system that would assign its manufacturing overhead to
the following four activity cost pools (the other cost pool includes
organization-sustaining cost and idle capacity cost):
Activities and Activity Measures
Supporting direct labor (direct labor- hours)
Product sustaining (number of products) Total manufacturing
overhead cost
Estimated Overhead Cost$ 797,500
650,000
$2,200,000
Expected Activity
35,000 75,000 110,000
1 1 2
|
Xactive Pathbreaker |
Total |
|
Batch setups (setups)
|
680,000 250 150 |
400 |
|
Other |
72,500 NA NA
|
NA |
Compute the product margins for the Xactive and the Pathbreaker
products under the activity-based costing system.
3.Prepare a quantitative comparison of the traditional and
activity-based cost assignments. Explain why the traditional and activity-based
cost assignments differ.
Q2:Super Sales Company is the exclusive distributor for the
revolutionary bookbag. The product sells for $60 per unit and has a CM ratio of
40%. The company’s fixed expenses are $360,000 per year. The company plans to
sell 17,000 bookbag this year.
Required:
1.What
are the variable expenses per unit?
2.Using
the equation method:
a.
What is the break-even point in units and in sales dollars?
b.
What sales level in units and in sales dollars is required to
earn and annual profit of
$90,000?
c.
Assume that through negotiation with the manufacturer the Super
Sales Company is
able to reduce its variable expenses by $3 per unit. What is the
company’s new break-
even point in units and in sales dollars?
3.Repeat
(2) above using the formula method.
