Author Question: Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and ... (Read 65 times)

sarasara · **on:** Mar 6, 2021

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass, Chrome, and White. Production takes 25, 25, and 10 machine hours to manufacture 1000-unit batches of brass, chrome and white faucets, respectively. The following additional data apply:

BRASS

CHROME

WHITE

Projected sales in units

30,000

50,000

40,000

PER UNIT data:

Selling price

$40

$20

$30

Direct materials

$ 8

$ 4

$ 8

Direct labor

$15

$ 3

$ 9

Overhead cost based on direct labor hours

(traditional system)

$12

$ 3

$ 9

Hours per 1000-unit batch:

Direct labor hours

40

10

30

Machine hours

25

10

Setup hours

1.0

0.5

1.0

Inspection hours

30

20

Total overhead costs and activity levels for the year are estimated as follows:

Activity

Overhead costs

Activity levels

Direct labor hours

2,900 hours

Machine hours

2,400 hours

Setups

$465,500

95 setup hours

Inspections

$405,000

2,700 inspection hours

$870,500

Required:

a.	Using the traditional system, determine the operating profit per unit for each style of faucet.

b.	Determine the activity-cost-driver rate for setup costs and inspection costs.

c.	Using the ABC system, for each style of faucet

1.	compute the estimated overhead costs per unit.

2.	compute the estimated operating profit per unit.

d.	Explain the differences between the profits obtained from the traditional system and the ABC

system. Which system provides a better estimate of profitability? Why?

C.mcnichol98 · **Reply #1 on:** Mar 6, 2021

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