Problem:
Beeline Manufacturing produces two types of industrial ventilation machines: heavy-duty and standard. The assignment basis for overhead costs has always been direct labor hours. For 2013, Beeline compiled the following data for the two products:
Heavy-duty Standard
Sales in units 4,000 45,000
Sales price per unit $12,000.00 $9,900.00
Direct material and direct labor costs per unit $3,900.00 $3,100.00
Manufacturing overhead costs per unit $ 1,950.00 $2,350.00
Last year, Beeline purchased an expensive robotics system to allow for more complex products in the heavy-duty 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 2013:
Activity Cost Driver Cost Total Deluxe Standard
Setups # setups $ 1,200,000 500 410 90
Machine-related # of machine hours $ 59,800,000 500,000 250,000 250,000
Packing # shipments $ 104,550,000 255,000 45,000 210,000
1. Using the current cost system based on direct labor hours, what is the estimated total cost of manufacturing one unit for each type of ventilation machine?
2. Using the current cost system based on direct labor hours, what is the estimated profit per unit for each type of machine?
3.Using the activity-based costing data presented above, compute the cost driver rate for each overhead activity.
4. Compute the revised manufacturing overhead cost per unit for the heavy-duty machine.
5. Compute the revised total cost to manufacture one unit of the heavy-duty machine.
6. Compute the revised profit on one unit of the heavy-duty machine.