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SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 4-1
(a)
Estimated annual overhead costs
= Predetermined overhead rate
Expected annual operating activity
$1,000,000
= $10 per direct labor hour
100,000
(b)
92,000 direct labor hours X $10 = $920,000 overhead applied
(c)
If the manufacturing process is complex, then multiple allocation
bases can result in more accurate product-cost computations. In
such situations, managers need to consider an overhead cost
allocation method that uses multiple bases. That method is activitybased costing.
BRIEF EXERCISE 4-2
Under ABC, overhead costs are shifted from the high-volume products to
the low-volume products. This shift results in more accurate costing for
two reasons:
1. Low-volume products often require more special handling, such
as more machine setups and inspections, than high-volume
products. Thus, the low-volume product frequently is responsible
for more overhead costs per unit than is a high-volume product.
2. Assigning overhead using ABC will usually increase the cost per
unit for low-volume products. Therefore, a traditional overhead
allocation such as direct labor hours is usually a poor cost driver
for assigning overhead costs to low-volume products.
As a result, for Finney, one of the products (Product RX3) may have been low
volume and therefore may have more overhead costs assigned to it under
an ABC system.
4-6
Copyright © 2012 John Wiley & Sons, Inc.
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BRIEF EXERCISE 4-3
An appropriate cost driver for each activity is:
Activity
Cost Driver
Materials handling
Machine setups
Factory machine maintenance
Factory supervision
Quality control
Number of requisitions
Number of setups
Machine hours used
Number of employees
Number of inspections
BRIEF EXERCISE 4-4
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Number of parts or assemblies
Number of setups
Number of employees
Number of inspections
Number of purchase orders
Machine hours
Square footage occupied
BRIEF EXERCISE 4-5
Machine setups
Machining
Inspections
$150,000 ÷ 2,500 = $60 per setup
$325,000 ÷ 25,000 = $13 per machine hour
$ 87,500 ÷ 1,750 = $50 per inspection
BRIEF EXERCISE 4-6
Activity Cost Pool
Designing
Sizing and cutting
Stitching and trimming
Wrapping and packing
Estimated
Expected Use of
Overhead ÷ Cost Drivers per Activity =
$ 450,000
4,000,000
1,440,000
336,000
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10,000 designer hours
160,000 machine hours
80,000 labor hours
32,000 finished units
Activity-Based
Overhead Rates
$45.00 per designer hour
$25.00 per machine hour
$18.00 per labor hour
$10.50 per finished unit
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4-7
BRIEF EXERCISE 4-7
Activity Cost Pool
Ordering and receiving
Etching
Soldering
Estimated
Expected Use of
Overhead ÷ Cost Drivers per Activity =
$
90,000
480,000
1,760,000
Cost Drivers
11,000 orders
50,000 machine hours
500,000 labor hours
X
12,000 orders
60,000 machine hours
440,000 labor hours
Activity-Based
Overhead Rates
$7.50 per order
$8.00 per machine hour
$4.00 per labor hour
Overhead Total Overhead
Rates
=
Applied
$7.50
$ 82,500
$8.00
400,000
$4.00
2,000,000
$2,482,500
BRIEF EXERCISE 4-8
(a)
(b)
(c)
(d)
(e)
(f)
Non-value-added
Value-added
Non-value-added
Non-value-added
Non-value-added
Value-added
BRIEF EXERCISE 4-9
Value-added Activities
Hours
(1) Designing and drafting
(3) On-site supervision
(5) Consultation with client
2.5
2.0
1.5
6.0
Non-value-added Activities
Hours
(2) Staff meetings
(4) Lunch
(6) Entertaining a prospective client
4-8
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BRIEF EXERCISE 4-10
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Batch- or unit-level
Unit-level
Unit-level
Batch- or unit-level
Facility-level
Batch- or product-level
Batch- or product-level
Unit-level
Facility-level
Batch-level
BRIEF EXERCISE 4-11
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Facility-level
Unit-level
Product-level
Unit-level
Batch-level
Batch-level
Product-level
Facility-level
BRIEF EXERCISE 4-12
(a) Product design
(b)
$40,000
= $4,000 per product change
10
Machining
$300,000
= $2 per machine hour
150,000
Material handling
$100,000
= $1,000 per set up
100
Product design—product-level
Machining—unit-level
Material handling—batch-level
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4-9
SOLUTIONS TO DO IT! REVIEW EXERCISES
DO IT! 4-1
1.
2.
3.
4.
5.
True
False
False
True
True
DO IT! 4-2
(a) Computations of activity-based overhead rates per cost driver:
Activity Cost
Pools
Machine setup
Machining
Packing
Estimated
Overhead
$ 16,000
110,000
30,000
$156,000
Expected Use of Cost
Activity-Based
Drivers per Activity
Overhead Rates
40 setups
$400 per setup
5,000 machine hours $ 22 per machine hr.
500 orders
$ 60 per order
(b) Assignment of each activity’s overhead cost to products using ABC:
BC113
AD908
Expected
Activity Cost
Pools
Machine setup
Machining
Packing
Use of Cost
Cost
Drivers per Activity-Based
Overhead Rates Assigned
Product
25
1,000
150
$400
$ 22
$ 60
Total assigned costs
Expected Use of Activity-Based
Cost
Cost Drivers per
Overhead
Assigned
Product
Rates
$10,000
22,000
9,000
15
4,000
350
$400
$ 22
$ 60
$41,000
$
6,000
88,000
21,000
$115,000
(c) Computation of overhead cost per unit:
Total costs assigned
Total units produced
Overhead cost per unit
4-10
Copyright © 2012 John Wiley & Sons, Inc.
(a)
(b)
(a) ÷ (b)
BC113
$41,000
3,000
$13.67
AD908
$115,000
1,500
$76.67
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DO IT! 4-2 (Continued)
(d) These computations show that the total overhead assigned to Product
AD908 is more than two and a half times that assigned to BC113. On a
per unit basis, the overhead assigned to AD908 is close to six times
that assigned to each BC113.
DO IT! 4-3
1.
2.
3.
4.
5.
NVA
VA
NVA
VA
VA
DO IT! 4-4
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
unit-level
product-level
facility-level
batch-level
unit-level
batch-level
facility-level
unit-level
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4-11
SOLUTIONS TO EXERCISES
EXERCISE 4-1
(a)
Estimated overhead
= Predetermined overhead rate
Direct labor costs
$270,000
= 180% of direct labor cost
$50,000 + $100,000
(b) Activity cost pools
Machining
Machine setup
Cost drivers
Machine hours
Set up hours
Estimated overhead
$170,000
100,000
Activity-based overhead rates
Machining:
Machine setup:
$170,000
$100,000
= $85 per machine hour
= $200 per setup hour
1,000 + 1,000
400 + 100
(c)
Traditional costing
$50,000 X 180%
$100,000 X 180%
Standard
$90,000
$90,000
Activity-based costing
Machining:
1,000 X $85
1,000 X $85
Machine setup:
100 X $200
400 X $200
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$180,000
$180,000
$85,000
$85,000
20,000
$105,000
4-12
Custom
80,000
$165,000
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EXERCISE 4-2
(a)
Traditional costing system
Sales
Costs
Operating income
(b)
Product 540X
Product 137Y
$180,000
55,000
$125,000
$160,000
50,000
$110,000
Product 249S
$70,000
15,000
$55,000
Activity-based costing system
Sales
Costs
Operating income
(c) Product 540X:
Product 540X
Product 137Y
$180,000
50,000
$130,000
$160,000
35,000
$125,000
Product 249S
$70,000
35,000
$35,000
($130,000 – $125,000) ÷ $125,000 = 4.00%
Product 137Y
($125,000 – $110,000) ÷ $110,000 = 13.64%
Product 249S
($35,000 – $55,000) ÷ $55,000 = (36.36%)
(d) These costs are similar probably because the cost drivers are
essentially the same; that is, they are based on a unit volume
concept.
Copyright © 2012 John Wiley & Sons, Inc.
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4-13
EXERCISE 4-3
(a)
Cost drivers
Activity cost pools
Cutting
Machine hours
Design
Number of setups
Activity-based overhead rates
Cutting
$360,000 = $1.80 per machine hour
200,000
Estimated overhead
$360,000
630,000
Design
$630,000 = $420 per setup
1,500
Wool
Activity-based costing
Cutting
100,000 X $1.80
100,000 X $1.80
$180,000
$180,000
Design
1,000 X $420
500 X $420
Total cost allocated
(b)
420,000
210,000
$390,000
$600,000
Estimated overhead = $990,000
Direct labors hours
450,000
= $2.20 per direct labor hour
Wool
Traditional costing
225,000 X $2.20
225,000 X $2.20
Cotton
Cotton
$495,000
$495,000
The wool product line is allocated $105,000 ($600,000 – $495,000) more
overhead cost when an activity-based costing system is used. As a result,
the cotton product line is allocated $105,000 ($495,000 – $390,000) less.
4-14
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EXERCISE 4-4
(a)
Direct labor hours for car wheels
(40,000 X 1) = 40,000
Direct labor hours for truck wheels (10,000 X 3) = 30,000
Total direct labor hours
70,000
$770,000 (total estimated overhead)
70,000 (total direct labor hours)
= $11 per direct labor hour.
Overhead assigned
Car wheels
Truck wheels
Total overhead
(b)
Activity Cost Pool
Estimated
Overhead
Setting up machines
Assembling
Inspection
$220,000
280,000
270,000
(c)
Activity Cost Pools
Setting up machines
Assembling
Inspection
Total cost assigned
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= $440,000
= 330,000
$770,000
(40,000 X $11)
(30,000 X $11)
Expected
ABC
Use of
Overhead
÷ Cost Drivers =
Rate
1,000
70,000
1,200
$220
$ 4
$225
Car Wheels
Activity-Based
Expected Use
Overhead
of Cost Driver
Rates
=
per Product X
200
40,000
100
$220
$ 4
$225
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Cost
Assigned
$ 44,000
160,000
22,500
$226,500
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4-15
EXERCISE 4-4 (Continued)
(c)
Activity Cost Pools
Truck Wheels
Activity-Based
Expected use
Overhead
of Cost Driver
Rates
=
per Product X
Setting up machines
Assembling
Inspection
Total cost assigned
(d)
4-16
800
30,000
1,100
$220
$ 4
$225
Cost
Assigned
$176,000
120,000
247,500
$543,500
Assuming that the cost drivers are a reasonable representation of
what is occurring in the two product lines, it seems appropriate to
switch to activity-based costing. By using this system, more accurate
cost information is developed which should lead to better allocation
of resources and pricing decisions in the future.
Copyright © 2012 John Wiley & Sons, Inc.
Weygandt, Managerial Accounting, 6/e, Solutions Manual
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EXERCISE 4-5
(a)
Activity Cost Pools
Scheduling and travel
Setup time
Supervision
Estimated Overhead
$105,000
$ 70,000
$ 60,000
Expected use
÷ of Cost Drivers = ABC Overhead Rates
1,500
$ 70.00
700
$100.00
$400,000*
$
.15
*$100,000 + $300,000
Commercial
Activity Cost Pools
Scheduling and travel
Setup time
Supervision
Total assigned costs
Expected use of Cost
Drivers per Product
1,000
450
$100,000
X ABC Overhead Rates =
$ 70.00
$100.00
$
.15
Cost Assigned
$ 70,000
45,000
15,000
$130,000
Residential
Activity Cost Pools
Scheduling and travel
Setup time
Supervision
Total assigned costs
Expected use of Cost
Drivers per Product
500
250
$300,000
(b)
Revenues
Direct material costs
Direct labor costs
Overhead costs
Operating income (loss)
(c)
X ABC Overhead Rates =
$ 70.00
$100.00
$
.15
Commercial
$300,000
$ 30,000
100,000
130,000
260,000
$ 40,000
Cost Assigned
$ 35,000
25,000
45,000
$105,000
Residential
$480,000
$ 50,000
300,000
105,000
455,000
$ 25,000
Assuming that the cost drivers are a reasonable representation of
what is occurring in the two product lines, it seems appropriate to
switch to activity-based costing. By using this system, more accurate
cost information is developed which should lead to better allocations
of resources and more informative pricing decisions in the future.
Copyright © 2012 John Wiley & Sons, Inc.
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4-17
EXERCISE 4-6
(a) Traditional costing:
$260,000 ÷ 2,500 (800 + 1,700) hours
= $104 per direct labor hour
(1) One mobile safe:
800 hours X $104 = $83,200
$83,200 ÷ 200 = $416 each
(2) One walk-in safe:
1,700 hours X $104 = $176,800
$176,800 ÷ 50 = $3,536 each
(b) Activity-based costing:
(1) Material handling costs
$160,000 ÷ 500 (300 + 200) moves = $320 per move
(a) One mobile safe:
300 moves X $320 = $96,000
$96,000 ÷ 200 = $480 each
(b) One walk-in safe:
200 moves X $320 = $64,000
$64,000 ÷ 50 = $1,280 each
(2) Purchasing activity costs
$100,000 ÷ 800 (450 + 350) orders = $125 per order
(a) One mobile safe:
450 orders X $125 = $56,250
$56,250 ÷ 200 = $281.25 each
(b) One walk-in safe:
350 orders X $125 = $43,750
$43,750 ÷ 50 = $875 each
4-18
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Weygandt, Managerial Accounting, 6/e, Solutions Manual
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EXERCISE 4-6 (Continued)
(c) The total amount of overhead allocated to each unit of the two products
under the two allocation approaches is:
Mobile safe
Walk-in safe
Traditional
Costing
Activity-Based
Costing
$ 416
$3,536
** $761.25**
$ 2,155**
**$480 + $281.25
**$1,280 + $875
EXERCISE 4-7
The following activities might be identified at Quik Prints Company from
your analysis of its operations and a discussion with the owner-manager,
Terry Morton.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Hiring and training personnel
Purchasing supplies and materials
Selling, promoting, and marketing
Billing and collecting
Designing
Offset printing
Copying
Faxing
Collating
Cutting and folding
Maintenance and repairs
Delivery
Accounting
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4-19
EXERCISE 4-8
Budgeted Costs
Activity Cost Pool
Cost Driver
Engineering design
Engineering prototypes
Engineering
Engineering hours
Depreciation, machinery
Electricity, machinery
Machinery
Machine hours
Machine setup
Number of setups
Inspections
Tests
Quality control
Number of tests or
inspections
Depreciation, plant
Insurance, plant
Property taxes
Oil, heating
Electricity, plant lighting
Factory utilities
Square feet or
Machine hours
Machine maintenance wages
Maintenance
Machine setup, indirect labor
Machine setup, indirect
materials
Number of
machines or
Machine hours
EXERCISE 4-9
The following cost drivers might be used to assign overhead:
1.
2.
3.
4.
5.
6.
7.
8.
4-20
Labor hours
Labor hours
Labor hours
Gallons of chemicals
Number of cartfuls or
labor hours
Number of cartfuls
Gallons of juice
Gallons of juice
Copyright © 2012 John Wiley & Sons, Inc.
9.
10.
11.
12.
13.
14.
15.
Gallons of wine or months of aging
Number of bottles
Number of bottles
Number of boxes
Number of shipments
Number of gallons processed
Number of gallons processed
Weygandt, Managerial Accounting, 6/e, Solutions Manual
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EXERCISE 4-10
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Number of engineering change orders; hours of designing
Number of orders processed
Number of parts in stock
Weight of material; number of boxes or cartons
Employee turnover; number of employees hired
Machine hours; direct labor hours
Number of employees; number of parts; direct labor hours
Number of employees
Book or market value of assets
Cost of goods manufactured, direct labor hours; number
of employees
Machine hours; number of machines
Gallons of paint; number of appliances
EXERCISE 4-11
(a) The overhead rates are:
Expected Use
Estimated of Cost Drivers Activity-Based
Overhead ÷ per Activity = Overhead Rates
Activity Cost Pools
Materials handling
Machine setups
Quality inspections
$40,000
27,500
27,000
1,000
500
600
$40
55
45
(b) The assignment of the overhead costs to products is as follows:
Instruments
Gauges
Cost Driver
Number
Cost
Number
Cost
400
$16,000
Requisitions ($40)
600
$24,000
11,000
Machine setups ($55) 200
300
16,500
200
9,000
Inspections ($45)
400
18,000
Total costs
assigned (a)
$36,000
$58,500
Units produced (b)
Overhead cost per
Unit (a) ÷ (b)
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50
$
720
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Cost
Assigned
$40,000
27,500
27,000
$94,500
300
$
195
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4-21
EXERCISE 4-11 (Continued)
(c)
MEMO
To:
President, Major Instrument, Inc.
From:
Student
Re:
Benefits of activity-based costing (ABC)
ABC focuses on the activities performed in producing a product.
Overhead costs are assigned to products based on cost drivers that
measure the activities performed on the product.
The primary benefit of ABC is more accurate and meaningful product
costing. This improved cost data can lead to reduced costs as managers
become more aware of the underlying causes of cost incurrence. Thus,
control over costs is enhanced.
The improved cost data should also lead to better management
decisions. More accurate product costing should contribute to setting
selling prices which will help achieve desired profitability levels. In
addition, it should be helpful in deciding whether to make or buy a
product part or component, and sometimes even whether to eliminate
a product.
4-22
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Weygandt, Managerial Accounting, 6/e, Solutions Manual
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EXERCISE 4-12
(a) (1) Traditional product costing system:
$400,000 X .70 = $280,000 Selling costs assigned in March to the
“high intensity” product line.
(2) Activity-based costing system:
Activity Cost Pools
Sales commissions
Advertising—TV/Radio
Advertising—Newspaper
Catalogs
Cost of catalog sales
Credit and collection
Total assigned cost for March
ActivityBased
Cost Drivers
Overhead
Overhead Cost
Used
X
Rates =
Assigned
$900,000
250
2,000
60,000
9,000
$900,000
$.05
$300
$10
$2.50
$1.00
$.03
$ 45,000
75,000
20,000
150,000
9,000
27,000
$326,000
(b) As compared to ABC, traditional costing grossly undercosts the selling
costs assigned to the “high intensity” product line. The difference
of $46,000 ($326,000 – $280,000) in the month of March is a 14.1%
understatement.
(c) All six activities, as selling activities, are non-value-added activities.
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4-23
EXERCISE 4-13
(a) 1.
Traditional product costing system:
Quality-control overhead costs assigned in June to the low-calorie
dessert line are $11,050 ($65,000 X .17).
2.
Activity-based costing system:
ActivityBased
Cost Drivers
Overhead
Overhead Cost
Used
X
Rate
=
Assigned
Activity Cost Pools
Inspections of material received
In-process inspections
FDA certification
Total assigned cost for June
6,000
10,000
420
$ .80
$ .33
$12.00
$ 4,800
3,300
5,040
$13,140
(b) As compared to ABC, the traditional costing system undercosts the
quality-control overhead cost assigned to the low-calorie dessert
product line by $2,090 ($13,140 – $11,050) in the month of June. That is
a 15.9% understatement.
(c) All three activities, as quality-control related activities, are non-valueadded activities.
4-24
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EXERCISE 4-14
Value-Added Activities
Hours
Writing contracts and letters
Taking depositions
Contemplating legal strategy
Litigating a case in court
Non-Value-Added Activities
1.5
1.0
1.0
2.5
6.0
Hours
Attending staff meetings
Doing research
Traveling to/from court
Eating lunch
Entertaining a prospective client
0.5
1.0
1.0
1.0
1.5
5.0
Questionable Classifications
Writing contracts is value-added; writing letters may be value-added if
related to a specific case or it may be non-value-added if it is billing a client
or collecting receivables. Research may be value-added if it is unique, related
to a specific case, and is billable. Research may be non-value-added if it is
something the attorney should already have known and is not billable to
the client.
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4-25
EXERCISE 4-15
Activity Cost Pools
Activity Level
Engineering
Machinery
Machine setup
Quality control
Product-level
Unit-level
Batch-level
Depends on frequency. Could be unit, batch,
or product-level
Facility-level
Facility-level
Factory utilities
Maintenance
EXERCISE 4-16
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
4-26
Facility-level activity
Product-level activity
Batch-level activity
Product-level activity
Product-level activity
Batch-level activity
Facility-level activity
Batch-level or unit-level activity
Unit-level activity
Unit-level activity
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SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
(a) Computation of unit costs—traditional costing.
Products
Manufacturing Costs
Home Model
Commercial Model
$18.50
19.00
* 24.26*
$61.76
$26.50
19.00
* 24.26*
$69.76
Direct materials
Direct labor
Overhead
Total unit cost
*$16.17 X 1.5 = $24.26
(b)
Estimated
Overhead ÷
Activity Cost Pool
Receiving
Forming
Assembling
Testing
Painting
Packing and shipping
$
70,350
150,500
412,300
51,000
52,580
820,750
$1,557,480
Expected
Use of Cost Drivers
Activity-Based
Overhead Rate
=
335,000 Pounds
35,000 Machine hours
217,000 Parts
25,500 Tests
5,258 Gallons
335,000 Pounds
$ .21 per pound
$ 4.30 per machine hour
$ 1.90 per part
$ 2.00 per test
$10.00 per gallon
$ 2.45 per pound
(c)
Home Model
ActivityBased
Expected
Overhead
Cost
Use of
Drivers X Rates = Assigned
Activity Cost Pool
215,000
Receiving
27,000
Forming
165,000
Assembling
15,500
Testing
3,680
Painting
215,000
Packing and shipping
Total costs assigned (a)
Units produced
$ .21
$ 4.30
$ 1.90
$ 2.00
$10.00
$ 2.45
$
45,150
116,100
313,500
31,000
36,800
526,750
$1,069,300
120,000
8,000
52,000
10,000
1,578
120,000
$ .21
$ 4.30
$ 1.90
$ 2.00
$10.00
$ 2.45
$ 25,200
34,400
98,800
20,000
15,780
294,000
$488,180
54,000
(b)
Overhead cost per unit [(a) ÷ (b)]
Copyright © 2012 John Wiley & Sons, Inc.
Commercial Model
ActivityBased
Expected
Overhead
Cost
Use of
Drivers X Rates = Assigned
$
19.80
Weygandt, Managerial Accounting, 6/e, Solutions Manual
10,200
$
(For Instructor Use Only)
47.86
4-27
PROBLEM 4-1A (Continued)
(d)
ABC Manufacturing Costs
Direct materials
Direct labor
Overhead
Total cost per unit
(e)
(f)
Home Model
Commercial Model
$18.50
19.00
19.80
$57.30
$26.50
19.00
47.86
$93.36
Activity
Value- vs. Non-Value-Added
Receiving
Forming
Assembling
Testing
Painting
Packing and shipping
Non-value-added
Value-added
Value-added
Non-value-added
Value-added
Value-added
(1) Activity-based costing shows the commercial model absorbs
nearly 21/2 ($47.86 ÷ $19.80) times as much overhead per unit as
the home model.
(2) The comparison of ABC and traditional costing shows that the
proper amount of overhead assigned to the two products is not
equal at $24.26 but rather $19.80 for the home model and $47.86
for the commercial model. Under traditional costing, the margin of
error on the commercial model was almost 100%, an understatement
of $23.60 on an assignment of $24.26. These distorted overhead
assignments have likely led to overpricing the home model and
underpricing the commercial model.
4-28
Copyright © 2012 John Wiley & Sons, Inc.
Weygandt, Managerial Accounting, 6/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 4-2A
(a) The allocation of total manufacturing overhead using activity-based
costing is as follows:
Overhead Rate
Purchase orders @ $30
Machine setups @ $50
Machine hours @ $40
Inspections @ $25
Total assigned costs (a)
Royale
Drivers
Cost
Used
Assigned
Majestic
Drivers
Cost
Used
Assigned
17,000
5,000
75,000
11,000
23,000
13,000
45,000
17,000
$ 510,000
250,000
3,000,000
275,000
$4,035,000
Units produced (b)
$ 690,000
650,000
1,800,000
425,000
$3,565,000
25,000
Cost per unit (a) ÷ (b)
$
Total
Overhead
$1,200,000
900,000
4,800,000
700,000
$7,600,000
10,000
161.40
$
356.50
(b) The cost per unit and gross profit of each model under ABC costing
were:
Royale
Majestic
Direct materials
Direct labor
Manufacturing overhead
Total cost per unit
$ 700.00
120.00
161.40
$ 981.40
$ 420.00
100.00
356.50
$ 876.50
Sales price per unit
Cost per unit
Gross profit
$1,600.00
981.40
$ 618.60
$1,300.00
876.50
$ 423.50
(c) Management’s future plans for the two television models are not
sound. Under ABC costing, the Royale model is $195.10 ($618.60 –
$423.50) per unit more profitable than the Majestic model. If any
product should be phased out, it is the Majestic. But, by applying ABC
and activity-based management analysis, Schultz may determine how
to reduce the costs of producing the Majestic model.
Copyright © 2012 John Wiley & Sons, Inc.
Weygandt, Managerial Accounting, 6/e, Solutions Manual
(For Instructor Use Only)
4-29