Question

Finch Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Finch uses an activity-based costing system. The following are the relevant cost data for the previous month:

   

Direct Cost per Unit	Model ZM			Model DS
Direct materials	$	20.5		$	10.5
Direct labor		29.0			13.0

   

Category	Estimated Cost					Cost Driver	Use of Cost Driver
Unit level		$	24,000			Number of units	ZM: 2,450 units; DS: 9,550 units
Batch level			47,000			Number of setups	ZM: 25 setups; DS: 25 setups
Product level			87,500			Number of TV commercials	ZM: 14; DS: 11
Facility level			270,000			Number of machine hours	ZM: 500 hours; DS: 1,000 hours
Total		$	428,500

Finch’s facility has the capacity to operate 4,500 machine hours per month.

   
Required

A. Compute the cost per unit for each product.

B. The current market price for products comparable to Model ZM is $129 and for DS is $80. If Finch sold all of its products at the market prices, what was its profit or loss for the previous month?

C. A market expert believes that Finch can sell as many cameras as it can produce by pricing Model ZM at $124 and Model DS at $45. Finch would like to use those estimates as its target prices and have a profit margin of 30 percent of target prices. What is the target cost for each product?

Answer 1