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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| 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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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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| 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 |
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| $ 2.86 |
| Machining | machine hours | $ 100,000 | 35,000 | $ 400 |
| Quality control | of inspections | $ 800,000 | 2,000 |
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| inspections | of employees |
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| 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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