Mahogany Manufacturing produces two types of entry doors: deluxe and standard. The current assignment basis for manufactoring overhead costs has been direct labor dollars. For 2005, Mahogany compiled the following data for the two products: Deluxe and Standard
| Sales units |
Deluxe |
Standard |
|
|
|
| Sales price per unit |
#50,000 |
#400,000 |
| Direct material and labor costs per unit |
$650.00 |
$475.00 |
| Manufacturing overhead costs per unit |
$80.00 |
$113.75 |
Last year, Mahogany Company 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. She obtained the following ABC information for 2005:
| Activity |
Cost driver |
Cost |
Total |
Deluxe |
Standard |
|
| Setups |
# setups |
$ 500,000 |
500 |
400 |
100 |
|
| Machine-related |
# of machine hours |
$44,000,000 |
600,000 |
300,000 |
300,000 |
|
| Packing |
# shipments |
$5,000,000 |
250,000 |
50,000 |
200,000 |
|
|
|
|
|
|
|
|
1) Using the current system, what is the estimated:
-- Total cost of manufacturing one unit for each type of door; and
-- Profit per unit for each type of door?
2. Using the activity-based costing data presented above,
1. compute the cost driver rate for each support activity.
2. compute the revised manufacturing overhead cost per unit for each type of entry door.
3. compute the revised total cost to manufacture one unit of each type of entry door and the revised profit per unit for each type of door.
3. Is the deluxe door as profitable as the original data estimated? Why or why not?