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 2014 was as follows:
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FC-PC |
FC-laptop |
|
Direct Nlaterials |
$1.260 |
$3,040 |
|
Direct labor ($25 per hour) |
200 |
300 |
|
Manufacturing overhead ($10 per DLH) |
80 |
120 |
|
Total per unit cost |
$1,540 |
$3,460 |
In 2014, 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 53,400.000 by the total direct labor hours (340,000) for the two computers.
The gross profit and gross margin on the computers were: FC-PC $460 ($2,000 – $1,540) and 23% ($460.42,000); and FC-laptop $740 ($4200- $3,460) and 17.62% ($7401$4,200). Because of the lower profit margin on the EC-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, 2014:
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|
|
|
Cost |
|
|
|
|
Total |
Driver |
Overhead |
|
Activity |
Cost Driver |
Cost |
Volume |
Rate |
|
Ordering raw materials |
# of orders |
$ 600,000 |
80 |
$1.250 |
|
Receiving raw materials |
# of shipments |
$ 100,000 |
75 |
$1.600 |
|
Materials handling |
# weight of materials |
$ 600,000 |
60,000 lbs. |
$ 10 |
|
Production scheduling |
# of orders |
$ 100,000 |
35,000 |
$ 2.86 |
|
Machining |
# machine hours |
$ 800,000 |
2,000 |
$ 400 |
|
Quality control |
|
|
|
|
|
inspections |
# of inspections |
$1,200,000 |
10,000 |
$ 120 |
|
Factory supervision |
# of employees |
$ 480,000 |
250 |
$1.920 |
The cost driver volume for each product was:
|
# Cost Driver |
FC-PC |
FC-LAPTOP |
TOTAL |
|
# of orders-r.m |
60 |
20 |
80 |
|
# of shipments-r.m. |
50 |
25 |
75 |
|
# weight of materials |
40,000 lbs. |
20,000 lbs. |
60,000 lbs. |
|
# of orders-prod. |
20,000 |
15,000 |
35,000 |
|
# machine hours |
1,100 |
900 |
2,000 |
|
# of inspections |
8,000 |
2000, |
10,000 |
|
# of employees
|
150 |
100 |
250 |
Instructions
(a) Assign the total 2014 manufacturing overhead costs to the two products using activity-based costing (ABC).
(b) What was the cost per unit, gross profit and gross margin of each model using ABC costing?
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