Fastchip, Inc. manufactures two computers: the FC-PC which sells for $2,000, and the FC-laptop, which sells for $4,200. The production cost per unit for each computer in 2013 was as follows:
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FC-PC |
FC-laptop |
|
Direct Materials |
$1,260 |
$3,040 |
|
Direct Labor ($25 per hour) |
200 |
300 |
|
Manufacturing overhead ($10 per DLH) |
80 |
120 |
|
Total per unit cost |
$1,540 |
53,460 |
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|
|
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In 2013, Fastchip manufactured 20,000 units of the FC-PC and 15,000 units of the FC-laptop. The overhead rate of $10 per direct labor hour was determined by dividing the total expected manufacturing overhead of $3,400,000 by the total direct labor hours (340,000) for the two computers.
The gross profit and gross profit rate on the computers were: FC-PC $460 ($2,000 − $1,540) and 23% ($460/$2,000); and FC-laptop $740 ($4,200 − $3,460) and 17.62% ($740/$4,200). Because of the lower profit margin on the FC-laptop, management is considering phasing out the FC-laptop and increasing the production of the FC-PC.
Before finalizing its decision, management asks the controller of Fastchip to prepare an analysis using activity-based costing. The controller accumulates the following information about overhead for the year ended December 31, 2013:
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|
|
Cost |
|
|
|
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Total |
Driver |
Overhead |
|
Activity |
Cost Driver |
Cost |
Volume |
Rate |
|
Ordering raw materials |
of orders |
$ 100,000 |
80 |
$1,250 |
|
Receiving raw materials |
of shipments. |
$ 120,000 |
75 |
$1,600 |
|
Materials handling |
weight of materials |
$ 600,000 |
60,000 11)s |
$ 10 |
|
Production scheduling |
of orders |
|
|
$ 2.86 |
|
Machining |
machine hours |
$ 100,000 |
35,000 |
$ 400 |
|
Quality control |
of inspections |
$ 800,000 |
2,000 |
|
|
inspections |
of employees |
|
|
|
|
Factory supervision |
Cost Driver |
$1,200,000 |
10,000 |
$ 120 |
|
Activity |
of orders |
$ 480,000 |
250 |
$1,920 |
The cost driver volume for each product was:
|
Cost driver |
FC-PC |
Fc laptop |
total |
|
of orders |
60 |
20 |
80 |
|
-4 of shipments |
50 |
25 |
75 |
|
weight of materials |
40,000 lbs. |
20,000 lbs. |
60,000 lbs. |
|
of orders |
20,000 |
15,000 |
35,000 |
|
machine hours |
1,100 |
900 |
2,000 |
|
of inspections |
8,000 |
2,000 |
10,000 |
|
of employees |
150 |
100 |
250 |
Instructions
(a) Assign the total 2013 manufacturing overhead costs to the two products using activity-based costing (ABC).
(b) What was the cost per unit, gross profit, and gross profit rate of each model using ABC costing?
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