manufacturing overhead costs

manufacturing overhead costs
Trujillo Stereos manufactures two for $450 per speaker. The production cost computed per unit under traditional high fidelity speaker models: the Sonic which sells for $500 per speaker, and the Boom which sells costing for each model in 20″13 was as follows:
Sonic
Boom
Direct materials
$150
$140
Direct labor ($20 per hour)
80
60
Manufacturing overhead ($30 per DLH)
120
90
Total
$350
$290
In 2013, Trujillo manufactured 80,000 units of the Sonic and 60,000 units of the Boom. The overhead rate of $30 per direct labor hour was determined by dividing total expected manufacturing overhead of $ 15,000,000 by the total direct labor hours (500,000) for the two models.
under traditional costing, the gross profit on the models was: Sonic $150 ($500 – $350i and BOOM $160 ($450 – $290). Because of this difference, management is considering phasing out the Sonic model and increasing the production of the Boom model.
Before finalizing its decision, management asks the controller of Trujillo to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 3″1, 2013.
Activity
Expected Use
Based
Estimated
of Cost Drivers
Overhead
Activity
Cost Driver
Overhead
Per Activity
Rate
Purchasing
Number of orders
$3,000,000
120,000
$25
Machine setups
Number of setups
2,000,000
40,000
50
Machining
Machine hours
9,000,000
200,000
45
Quality control
Number of inspections
1,000,000
25,000
40
The cost drivers used for each product were:
Cost Driver
Sonic
Boom
Total
Purchase orders
80,000
40,000
120,000
Machine setups
30,000
10,000
40,000
Machining
90,000
110,000
200,000
Quality control
15,000
10,000
25,000
Instructions
Assign the total 2013 manufacturing overhead costs to the two products using activity-based costing (ABC).
What was the cost per unit and gross profit of each model using ABC costing?
Are management”s future plans for the two models sound?