Honors ACCT2332 ABC Project Solution - Honors ACCT2332 Zeus...

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Zeus Optical The following table provides key information about the product lines. Eyepieces Binoculars Camera Lens Sales volume (units) 24,000 21,000 7,000 Price $ 64.00 $ 80.00 $ 150.00 Unit Variable Costs of Licensing and Patent Fees $ 8.00 $ 20.00 $ 25.00 Unit Variable Cost of Direct Labor & Materials $ 40.00 $ 32.00 $ 80.00 Unit Contribution Margin (before overhead) $ 16.00 $ 28.00 $ 45.00 Unit Profit Margin After Deducting Overhead $ (5.00) $ 1.75 $ 10.00 Labor hours / unit 1.20 1.50 2.00 Annual Overhead Costs = 1,300,250.00 $ The firm allocates this overhead among product lines using the number of labor hours used by each product line. A. Verify the profit margin data reported in the problem text, using the current allocation system. Step 1. Total direct labor hours producing eyepieces = 24,000 * 1.2 = 28800 Step 2. Total direct labor hours producing binoculars = 21,000 * 1.5 = 31500 Step 3. Total direct labor hours producing camera lens = 7,000 * 2 = 14000 Step 4: Total direct labor hours producing all 3 products = 28800 + 31500 + 14000 = 74300 Step 5: Overhead rate per direct labor hour = $ 1,300,250.00 / 74300 = $ 17.50 Step 6: Overhead per unit for eyepieces 17.50 $ * 1.2 = 21.00 $ Step 7: Overhead per unit for binoculars $ 17.50 * 1.5 = 26.25 $ Step 8: Overhead per unit for camera lens $ 17.50 * 2 = 35.00 $ per direct labor CASE FACTS: Zeus Opticals is a specialist manufacturer of optical instruments. Zeus has recently expanded its core product market of binoculars into making eyepieces for microscopes / telescopes, and screw-on lenses for digital SLR cameras. The firm believes that it makes little money selling binoculars and that these new markets have great profit potential. Somewhat to Zeus’s surprise, it finds it tough to make money with eyepieces. As of now, the firm is selling the product at a negative profit margin. Yet, Zeus faces intense price pressure in this segment, and thinks that it might have to lower prices by

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