4. (18) Veeblefester Company manufactures two types of gizmo (Model A and Model B) in its Longmont plant. Product information: Model A Model…
4. (18) Veeblefester Company manufactures two types of gizmo (Model A and Model B) in its Longmont plant. |
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Product information: |
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Model A |
Model B |
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Direct material/unit |
$40 |
$55 |
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Direct labor/unit |
$32 |
$47 |
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Budgeted volume (units) |
8,000 |
10,000 |
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Setups |
50 |
30 |
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Machine hours |
16,000 |
24,000 |
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Shipments |
230 |
170 |
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Budgeted overhead for the year is $3,200,000 |
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a) Compute the unit cost of each model if overhead is allocated on the basis of machine hours. |
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b) Overhead costs are driven 55% by machining, 25% by setups, and 20% by shipments. |
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Compute the unit cost of each model if overhead is allocated with an ABC system, using |
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these three cost drivers. |
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c) Model A currently sells for $300/unit. In order to meet budgeted sales volume, the |
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marketing department is advocating a 15% price cut. Is this advisable? Explain. |
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