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Kimmel_Accounting_4e_Set_C_Problems_Ch17 - Problems: Set C...

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P17-1CVidPlayers, Inc. manufactures two types of DVD players, a deluxe model anda standard model. The deluxe model is a multi-format progressive-scan DVD player withnetworking capability, Dolby digital, and DTS decoder. The standard model’s primary fea-ture is progressive-scan. Annual production is 20,000 units for the deluxe and 50,000 unitsfor the standard.Both products require 2 hours of direct labor for completion. Therefore, total annualdirect labor hours are 140,000 or [2 hrs.(20,00050,000)]. Expected annual manu-facturing overhead is $980,000. Thus, the predetermined overhead rate is $7 or($980,000140,000) per direct labor hour. The direct materials cost per unit is $11for the deluxe model and $42 for the standard model. The direct labor cost is $18 perunit for both the deluxe and the standard models.The company’s managers identified six activity cost pools and related cost driversand accumulated overhead by cost pool as follows.ExpectedUse ofExpected Use ofEstimatedCostDrivers by ProductActivity Cost PoolCost DriverOverheadDriversDeluxeStandardPurchasingOrders$130,000500150350ReceivingPounds30,00020,0004,00016,000AssemblingNumber of parts370,00074,00020,00054,000TestingNumber of tests115,00023,00010,00013,000FinishingUnits140,00070,00020,00050,000Packing and shippingPounds195,00078,00017,00061,000$980,000Instructions(a)Under traditional product costing, compute the total unit cost of both products.Prepare a simple comparative schedule of the individual costs by product (similar toIllustration 4-4).(b)Under ABC, prepare a schedule showing the computations of the activity-based over-head rates (per cost driver).(c)Prepare a schedule assigning each activity’s overhead cost pool to each product basedon the use of cost drivers. (Include a computation of overhead cost per unit, round-ing to the nearest cent.)(d)Compute the total cost per unit for each product under ABC.(e)Classify each of the activities as a value-added activity or a non-value-added activity.(f)Comment on (1) the comparative overhead cost per unit for the two products underABC, and (2) the comparative total costs per unit under traditional costing and ABC.P17-2CPetty Electronics manufactures two home theatre systems: the Elite which sellsfor $1,400, and a new model, the Preferred, which sells for $1,100. The production costcomputed per unit under traditional costing for each model in 2012 was as follows.Traditional CostingElitePreferredDirect materials$600$320Direct labor ($20 per hour)10080Manufacturing overhead ($35 per DLH)175140Total per unit cost$875$540In 2012, Petty manufactured 20,000 units of the Elite and 10,000 units of the Pre-ferred. The overhead rate of $35 per direct labor hour was determined by dividing totalexpected manufacturing overhead of $4,900,000 by the total direct labor hours (140,000)for the two models.Under traditional costing, the gross profit on the models was: Elite $525 or ($1,400$875), and Preferred $560 or ($1,100$540). Because of this difference, management is con-sidering phasing out the Elite model and increasing the production of the Preferred model.

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