3. Come-On-In Manufacturing The assignment basis for manufacturing support costs

Question

3. Come-On-In Manufacturing The assignment basis for manufacturing support costs has been direct labor For 20X5, Come-On-In compiled the following data for the two prodcts produces two types of entry doors: Deluxe and Standard dollars. Sales (in units) Deluxe 50,000 Standard 400,000 Sales price per unit $650.00 $475.00 Direct material and labor costs per unit Manufacturing support costs per unit Last 80.00 $120.00 year, Come-On-In Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. information for 20X5: She obtained the following ABC Deluxe Standard Activity Setups Machine-related of machine hours $44,000,000 300,000 300,00 Cost Driver Cost S 500,000 400 f setuhine hours 5. of shipments S 5,000,000 50,000 200,000 Required a. Using the current system, what is the estimated total cost of manufacturing one unit for each type of door? profit per unit for each type of door? 1. 2. b. Using the current system, estimated manufacturing overhead costs per unit are less for the deluxe door ($80 per unit) than the standard door ($120 per unit). What is a likely explanation for this? c Review the machine-related costs above. What is a likely explanation for machine-related costs being so high? What might explain why total machining hours for the deluxe doors (300,000 hours) are the same as for the standard doors (300,000 hours)? Using the activity-based costing data presented above, i. ii. d. compute the cost-driver rate for each overhead activity. compute the revised manufacturing overhead cost per unit for each type of entry door. ii. compute the revised total cost to manufacture one unit of each type of entry door. e. Is the deluxe door as profitable as the original data estimated? Why or why not? What considerations need to be examined when determining a sales mix strategy? f

Explanation / Answer

a)1

2)

b)The manufacturing overhead cost are allocated on the basis of direct labor cost so The overhead support cost allocated to standard doors might be higher due to higher direct labor cost than deluxe doors.

c)Machine related cost is High means the company makes more use of machines (machine intensive ).in other words it requires more of machine to manufacture doors

The machine hours are equal for Deluxe and standard doors it means both are making equal use of machine hours.

d)

ii)

iii)

Deluxe standard Direct material and labor cost 180 130 Manufacturing support cost per unit 80 120 Total manufacturing cost 260 250

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