Morgana Avionics makes three types of radios for small aircraft: Model A, Model
ID: 2456708 • Letter: M
Question
Morgana Avionics makes three types of radios for small aircraft: Model A, Model B, and Model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Morgana has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:
Model A
$28
Model B
$32
Model C
$40
Morgana has three activities: assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2015 were estimated as follows:
Total cost
Total units
Cost Driver
Assembly
$780,000
120,000
Machine hours
Materials management
$120,000
80,000
Parts
Testing
$22,500
5,000
Units
The Model A radio requires 12 parts to construct, and requires 16 machine hours of processing. What is the manufacturing cost to make one unit of Model A?
A) $150.00
B) $132.00
C) $126.50
D) $154.50
Model A
$28
Model B
$32
Model C
$40
Explanation / Answer
A
B
C
D=A/B
No of Units required for Model A
Cost per Unit
Activities
Total cost
Total units
Cost Driver
Cost Drive rate
Assembly
780,000
120,000
Machine hours
7
16
104.00
Materials management
120,000
80,000
Parts
2
12
18.00
Testing
22,500
5,000
Units
5
1
4.50
Manufacturing cost to make one unit of Model A?
28.00
154.50
Option D Correct
A
B
C
D=A/B
No of Units required for Model A
Cost per Unit
Activities
Total cost
Total units
Cost Driver
Cost Drive rate
Assembly
780,000
120,000
Machine hours
7
16
104.00
Materials management
120,000
80,000
Parts
2
12
18.00
Testing
22,500
5,000
Units
5
1
4.50
Manufacturing cost to make one unit of Model A?
28.00
154.50
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