Chapter 7 – Activity-Based Costing and Activity-Based Management
7-41
Problem 7-27, continued
c. Profitability using current system
Superior
Deluxe
Ultra
Sales revenue
$54,000,000
$86,400,000
$102,000,000
Direct materials
17,600,000
27,360,000
40,200,000
Direct labor
10,700,000
13,320,000
16,600,000
Overhead ($120 × total MH)
12,000,000
28,800,000
28,800,000
Total cost
$40,300,000
$69,480,000
$ 85,600,000
Gross profit
13,700,000
16,920,000
16,400,000
Divided by units produced
÷ 1,000
÷ 1,200
÷ 800
Gross profit per unit
$ 13,700
$ 14,100
$ 20,500
Profitability using ABC system
Superior
Deluxe
Ultra
Sales revenue
$54,000,000
$86,400,000
$102,000,000
Direct materials
17,600,000
27,360,000
40,200,000
Direct labor
10,700,000
13,320,000
16,600,000
Overhead allocated
13,262,000
24,990,000
31,348,000
Total cost
41,562,000
65,670,000
88,148,000
Gross profit
12,438,000
20,730,000
13,852,000
Divided by units produced
÷ 1,000
÷ 1,200
÷ 800
Gross profit per unit
$ 12,438
$ 17,275
$ 17,315
7-42
Problem 7-27, continued
expensive than the current method of allocating overhead shows.
The ABC system does nothing to change the overall profitability of the company, as overhead costs
still total $69,600,000.
e. Machine setup and calibration is the most expensive component of overhead; therefore, Irvin needs
7-44
Problem 7-28, continued
b.
Cost Pool
32” LCD
42” Plasma
Soldering
1,185,000 joints × $0.60
$ 711,000
385,000 joints × $0.60
$ 231,000
Shipping
16,000 shipments × $43
688,000
4,000 shipments × $43
172,000
Quality control
56,250 inspections × $16
900,000
21,750 inspections × $16
348,000
Purchasing
80,000 purchase orders × $5
400,000
110,000 purchase orders × $5
550,000
Machining
160,000 MH × $0.40
64,000
16,000 MH × $0.40
6,400
Setups
16,000 setups × $25
400,000
14,000 setups × $25
350,000
$3,163,000
$1,657,400
÷ units produced
20,000
4,000
OH per unit
$ 158.15
$ 414.35