Vernon Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom len
ID: 2400766 • Letter: V
Question
Vernon Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Vernon uses an activity-based costing system. The following are the relevant cost data for the previous month Direct Cost per Unit Model ZM Direct materials Direct labor $20.6 29.2 Model DS $ 9.0 11.0 Estimated Cost 24,990 45,600 88,750 228,000 $387,340 Cost Driver Use of Cost Driver Category Unit level Batch level Product level Facility level Number of units Number of setups Number of TV commercials Number of machine hours ZM: 2,500 units; DS: 9,400 units ZM: 24 setups; DS: 24 setups ZM: 16; DS: 9 ZM: 400 hours; DS: 800 hours Total Vernon's facility has the capacity to operate 3,600 machine hours per month Required a. Compute the cost per unit for each product. b. The current market price for products comparable to Model ZM is $126 and for DS is $78. If Vernon sold all of its products at the market prices, what was its profit or loss for the previous month? c. A market expert believes that Vernon can sell as many cameras as it can produce by pricing Model ZM at $121 and Model DS at $39 Vernon would like to use those estimates as its target prices and have a profit margin of 30 percent of target prices. What is the target cost for each product?Explanation / Answer
a)
b)
Profit /(loss)
ZM= 126-114.14= 11.86
DS = 78- 44.09 = 33.91
c)
Target cost=Target price(1-profit)
ZM= 121[1-.30] = $ 84.70
DS = 39 [1-.30] = $ 27.30
Activity cost activity cost /activity ZM DS Unit level 24990 2500+9400=11900 2.1 2500*2.1=5250 9400*2.1=19740 Batch level 45600 24+24=48 950 24*950=22800 22800 Product level 88750 16+9= 25 3550 3550*16=56800 31950 Facility level 228000 400+800=1200 190 76000 152000 160850 226490 Overhead cost per unit 160850/2500=64.34 226490/9400=24.09Related Questions
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