x.Hmellspacing=\"0\" cellpadding=\"0\" width=\"100%\" border=\"0\"> Jacobson Ele

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x.Hmellspacing="0" cellpadding="0" width="100%" border="0"> Jacobson Electronics manufactures two large-screen television models: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing for each model in 2008 was as follows. Traditional Costing Royale Majestic Direct materials $ 700 $420 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($38 per DLH) 228 190       Total per unit cost $1,048 $710 In 2008, Jacobson manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models.        Under traditional costing, the gross profit on the models was: Royale $552 or ($1,600 - $1,048), and Majestic $590 or ($1,300 - $710). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Jacobson's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2008. Activity Cost Driver Estimated Overhead Expected Use of Cost Drivers Activity-Based Overhead Rate Purchasing Number of orders $1,200,000 40,000 $30 Machine setups Number of setups 900,000 18,000 50

Explanation / Answer

Cost sheet - ABC costing approach (not required just forstudent's information) ========================================================                                             Royale 25,000units             Majestic10,000 units                                              UnitCost         Total          Unit Cost            Total                                           ------------------------        -------------------------- DirectMaterials                     $700    $17,500,000          $420            $4,200,000 Directlabor                           $120    $ 3,000,000          $100            $1,000,000 Manufacturing overheads ================= Purchasing    15 x1,200,000/40               $18      $450,000                25 x 1,200,000 /4                                                          $75                $750,000           Machine setup    5 x 900,000 /18                  $10       $250,000       13 x 900,000 /18                                                            $65               $650,000 Machining    75 x 4,800,000 /120         $120   $3,000,000                45 x 4,800,000 /120                                                       $180            $1,800,000 Quality control    9 x 700,000 /28                  $9        $225,000    19 x 700,000 /28                                                             $47.50           $475,000                                             ------- ---------------          -----------     --------------                                               $977  $24,425,000             $887.50        $8,875,000                                             ===============         =======      ========== Cost Per unit Royale                                 $977.00 Majestic                              $887.50 Gross Profit per unit Royale                                 $623.00      ($1,600- $977) Majestic                              $412.50      ($1,300  -$887.50)

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