Consider the hardware company in given Exercise. The company is contemplating outsourcing of its complex monitor M2. Assume that all other information remains as given in given Exercise.
(a) What is the cost per unit of each product using activity-based costing assuming that M2 is not produced?
(b) A prospective supplier of monitor M2 has offered a unit price of $480. Should the company outsource the monitor M2 to this supplier? Discuss.
Exercise
An assemble-to-order hardware company has two types of central processing units (CPUs), C1 and C2, and two types of display monitors, M1 and M2. Unit C2 is slightly more complex then C1, as is M2 compared to M1. The annual production volume and direct costs are shown in Table 1. Overhead costs for this past year are shown in Table 2. Assume that setup and testing costs are similar for both types of CPUs and monitors.
(a) Calculate the cost per unit of each product using the unit-based costing method by allocating overhead based on direct-labor costs.
(b) Calculate the cost per unit of each product using the activity-based costing method.
(c) Discuss the unit costs calculated using these two methods.