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rd

Managerial Accounting, 3 Edition, by Weygandt, Kieso, and Kimmel

Solving Managerial Accounting Problems Using Microsoft Excel for Windows by Rex A Schildhouse
$1,600
Problem P4-2A, Jacobson Electronics manufactures two large-screen television models: the Royale which sells for
and a new model, the Majestic, which sells for
$1,300
The production cost computed per unit under traditional costing for
each model is 2005 was as follows.
Traditional Costing
Royale
Majestic
Direct materials
$700
$420
Direct labor($20 per hour)
120
100
Mfg overhead ($38 per DLH)
228
190
Total per unit cost
$1,048
$710
In 2005, Jacobson manufactured
25,000
units of the Royale and
10,000
units of the Majestic. The overhead
rate of
$38
per direct labor hour was determined by dividing total expected manufacturing overhead of
$7,600,000
by the direct labor hours 200,000 for the two models.
Under traditional costing, the gross profit on the models was: Royale
$552
or ($1,600 - $1,048) and Majestic
$590 or ($1,300 - $710)
Because of this difference, management is considering phasing out the Royale model and increasing the
Majestic model.
Before finalizing its decision, management asks Jacobson's controller to prepare an analysis using activity-based costing (ABC). The
controller accumulates the following information about overhead for the year ended December 31, 2005.

Activity
Purchasing
Machine setups
Machining
Quality control

Cost Driver
Number of orders
Number of setups
Machine hours
Number of inspections

The cost drivers used for each product were:

Cost Driver
Purchase orders
Machine setups
Machine hours
Inspections

Royale
15,000
5,000
75,000
9,000

Estimated
Overhead
$1,200,000
900,000
4,800,000
700,000

Expected
Use of
Cost
Drivers
40,000
18,000
120,000
28,000

Majestic
25,000
13,000
45,000
19,000

Total
40,000
18,000
120,000
28,000

ActivityBased
Overhead
Rate
$30
50
40
25

Instructions:
(a) Assign the total 2005 manufacturing overhead costs to the two products using activity-based costing (ABC).
Royale
Majestic
Drivers
Cost
Drivers
Cost
Total
Overhead Rate
Rate
Used
Assigned
Used
Assigned Overhead
Label
Amount
Amount
Amount
Amount
Amount
Formula
Label
Amount
Amount
Amount
Amount
Amount
Formula
Label
Amount
Amount
Amount
Amount
Amount
Formula
Label
Amount
Amount
Amount
Amount
Amount
Formula
Total assigned costs
Formula
Formula
Formula
Units produced
Amount
Amount
Cost per unit
Formula
Formula
(b) What was the cost per unit and gross profit of each model using ABC costing?

Label
Label
Label
Total cost per unit

Royale
Amount
Amount
Amount
Formula

Majestic
Amount
Amount
Amount
Formula

(c) Are management's future plans for the two models sound? Explain the block below.

FileName: 254200918.xls.ms_office, Tab: Problem P4-2A, Page 1 of 2, 12/8/2014, 9:30 PM

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