Question 2 (30 marks)

Question 2 (30 marks)
Come-On-In Manufacturing produces two types of entry doors: Deluxe and Standard. The
assignment basis for support costs has been direct labor dollars. For 2009, Come-On-In
compiled the following data for the two products:
Deluxe Standard
Sales units $50,000 $400,000
Sales price per unit $650.00 $475.00
Direct material and labor costs per unit $180.00 $130.00
Manufacturing support costs per unit $ 80.00 $120.00
Last year, Come-On-In Manufacturing purchased an expensive robotics system to allow for
more decorative door products in the deluxe product line. The CFO suggested that an ABC
analysis could be valuable to help evaluate a product mix and promotion strategy for the next
sales campaign. She obtained the following ABC information for 2009:
Activity Cost Driver Cost Total Deluxe Standard
Setups of setups $ 500,000 500 400 100
Machine-related of machine hours $44,000,000 600,000 300,000 300,000
Packing of shipments $ 5,000,000 250,000 50,000 200,000
Required:
a. Using the current system, what is the estimated
1. total cost of manufacturing one unit for each type of door? (2 marks)
2. profit per unit for each type of door? (2 marks)
b. Using the current system, estimated manufacturing overhead costs per unit are less for
the deluxe door ($80 per unit) than the standard door ($120 per unit). What is a likely
explanation for this? (3 marks)
c. Review the machine-related costs above. What is a likely explanation for machinerelated
costs being so high? What might explain why total machining hours for the
deluxe doors (300,000 hours) are the same as for the standard doors (300,000
hours)? (5 marks)
d. Using the activity-based costing data presented above,
1. compute the cost-driver rate for each overhead activity. (3 marks)
2. compute the revised manufacturing overhead cost per unit for each type of
entry door. (2 marks)
3. compute the revised total cost to manufacture one unit of each type of entry
door. (3 marks)
e. Is the deluxe door as profitable as the original data estimated? Why or why not?
(5 marks)
f. What considerations need to be examined when determining a sales mix strategy?
(5 marks)
Question 3(B) (10 marks)
You are the chief financial officer of a lumber mill, and you are becoming quite concerned
about the spoilage, scrap, and reworked items associated with your production processes.
Your firm produces mainly products for the building industry.
Required:
Discuss the problems associated with these items and the methods your company can use to
reduce spoilage, scrap, and reworked items.
Question 4(A) (10 marks)
Describe methods which may be used to allocate support costs within organizations
containing multiple support departments. Discuss advantages and disadvantages of the
various methods.
Question 4(B) (10 marks)
Jonathan has managed a downtown store in a major metropolitan city for several years. The
firm has ten stores in varying locations. In the past, senior management noticed Jonathan’s
work and he has received very good annual evaluations for his management of the store.
This year his store has generated steady growth in sales, but earnings have been deteriorating.
After examining the monthly performance report generated by the company budgeting
department, he noticed that increasing fixed costs is causing the decrease in earnings.
Administrative corporate costs, primarily fixed costs, are allocated to individual stores each
month based on actual sales for that month. Two of these stores are currently growing at a
rapid pace, while four other stores are having operating difficulties.
Required:
From the information presented, what do you think is the cause of Jonathan’s reported
decrease in earnings? How can this be corrected?

 

Is this the question you were looking for? If so, place your order here to get started!