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Question 4 Applying overhead using activity based costing for the following 2 models of boats Cost...

Question 4

Applying overhead using activity based costing for the following 2 models of boats

Cost Driver                                   Annual Cost          Total Activity

Production order set-up                  $147,600               4,800 set-ups

Raw Material ordering                   $216,800                8,000 items ordered

Product cleaning                          $1,680,200                   775 inspection approvals

Equipment usage                          $948,500              12,500 machine hours

Cost Driver                                    Activity Required                  Activity Required

                                                      Viking-star  (117 units)           Lion-star (86 units)

Production order set-up                  1,084 set-ups                     976 set-ups

Raw Material ordering                    2,050 items ordered            3,690 items ordered

Product cleaning                             201 inspec. app                 41 inspec. app

Equipment usage                           1,025 machine hrs.             1,575 machine hrs.

The following per unit data is also available

Viking-star; price $39,999, Direct labor $13,021, Direct material $17,385

Lion-star; price $31,999, Direct labor $9,623, Direct Material $13,792

Which product is more profitable?

Homework Answers

Answer #1
Viking star Lion star
Cost Driver                                 Annual cost Total activity Activity rate R Activity A Cost allocated R*a Activity B Cost allocated R*B
Production order set-up       $147,600 4800 $30.75 1084 $33,333 976 $30,012
Raw Material ordering                    216800 8000 $27.10 2050 $55,555 3690 $99,999
Product cleaning                          1680200 775 $2,168.00 201 $435,768 41 $88,888
Equipment usage                          948500 12500 $75.88 1025 $77,777 1575 $119,511
$2,993,100 Total T $602,433 $338,410
No. of units produced N 117 86
Overhead cost per unit T/N $5,149 $3,935
Viking star Lion star
Sales price $39,999 $31,999
Less:
Direct Material $13,021 $9,623
Direrct labor 17385 13792
Overhead $5,149 $3,935
Total cost $35,555 $27,350
Profit P $4,444 $4,649
No. of units produced U 117 86
Total profit P*U $519,948 $399,814
If we see in terms of total profit it is better to produce Viking star as units produced are more than of Lion star
But we see profit per unit Lion star is more profitable
Answer So if overall profitablility is seen Viking star is more profitable
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