ABC, ABM (CMA) Apple wood Electronics manufactures two large-screen television models, the Monarch, which has been produced for five years and sells for $900, and the Regal, a new model that sells for $1,140. Applewood's CEO, Harry Hazelwood, suggested that the company should concentrate its marketing resources on the Regal model and begin to phase out the Monarch model.
Applewood currently uses a traditional costing system. The following cost information has been used as a basis for pricing decisions over the past year.
Per-Unit Data
Monarch Regal
Direct materials $208 $584
Direct labor hours 1.5 3.5
Machine hours 8.0 4.0
Units produced 22,000 4,000
Direct labor cost is $12 per hour,
and the machine usage cost is $18 per hour.
Manufacturing overhead costs were estimated at $4,800,000 and were allocated on the basis of machine hours.
Martin Alecks, the new company controller, suggested that an activity-based costing analysis first be run to get a better picture of the true manufacturing cost. The following data were collected:
Activity Center
Cost Driver
Traceable Costs
Soldering
Number of solder joints $ 942,000
Shipments
Number of shipments 860,000
Quality control
Number of inspections 1,240,000
Purchase orders
Number of orders 950,400
Machining
Machine hours 57,600
Machine setups
Number of setups 750,000
Total traceable costs $4,800,000
Number of Events
Activity
Monarch Regal Total
Soldering 1,185,000 385,000 1,570,000
Shipments 16,200 3,800 20,000
Quality control 56,200 21,300 77,500
Purchase orders 80,100 109,980 190,080
Machining 176,000 16,000 192,000
Machine setups 16,000 14,000 30,000
Selling, general, and administrative expenses per unit sold are $265.00 for Monarch and $244.50 for Regal.
REQUIRED:
A. Calculate the manufacturing cost per unit for Monarch and Regal under:
1. A traditional costing system
2. The ABC system
B. Explain the differences in manufacturing cost per unit calculated in part (A).
C.Calculate the operating profit per unit for Monarch and Regal under:
1. A traditional costing system
2. The ABC system
D.Should Applewood concentrate its marketing efforts on Monarch or on Regal?
Explain how the use of ABC affects your recommendation.