06 Dec ABC, ABM (CMA) Applewood Electronics manufactures
ABC, ABM (CMA) Applewood 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 DataMonarchRegalDirect materials$208$584Direct labor hours1.53.5Machine hours8.04.0Units produced22,0004,000Direct labor cost is $12 per hour, and the machine usage cost is $18 per hour. Manufacturing overhead costs were estimated at $4,800,000 and were allocated on the basis of machine hours.Martin Alecks, the new company controller, suggested that an activity-based costing analysis first be run to get a better picture of the true manufacturing cost. The following data were collected:Activity CenterCost DriverTraceable CostsSolderingNumber of solder joints$ 942,000ShipmentsNumber of shipments860,000Quality controlNumber of inspections1,240,000Purchase ordersNumber of orders950,400MachiningMachine hours57,600Machine setupsNumber of setups750,000Total traceable costs$4,800,000Number of EventsActivityMonarchRegalTotalSoldering1,185,000385,0001,570,000Shipments16,2003,80020,000Quality control56,20021,30077,500Purchase orders80,100109,980190,080Machining176,00016,000192,000Machine setups16,00014,00030,000Selling, 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 system2. The ABC systemB. 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 system2. The ABC systemD.Should Applewood concentrate its marketing efforts on Monarch or on Regal? Explain how the use of ABC affects your recommendation.
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