Eastern Chemical Company produces three products. The operating results of the current year are: ...
80.2K
Verified Solution
Link Copied!
Question
Accounting
Eastern Chemical Company produces three products. The operating results of the current year are:
Product
Sales Quantity
Target Price
Actual Price
Difference
A
1,000
$
285.00
$
286.00
$
1.00
B
5,000
297.60
255.60
(42.00
)
C
500
202.50
310.00
$
107.50
The firm sets the target price of each product at 150% of the products total manufacturing cost. It appears that the firm was able to sell Product C at a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has the greatest potential among the firms three products because the actual selling price of Product C was almost 50% higher than the target price, while the firm was forced to sell Product B at a price below the target price.
Both the budgeted and actual factory overhead for the current year are $510,000. The actual units sold for each product also are the same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct labor costs per unit for each product are:
Product A
Product B
Product C
Direct materials
$
50.00
$
114.40
$
65.00
Direct labor
20.00
12.00
10.00
Total prime cost
$
70.00
$
126.40
$
75.00
The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the following usage of factory overhead during the year:
Product A
Product B
Product C
Total Overhead
Number of setups
2
5
3
$
9,000
Weight of direct materials (pounds)
400
250
350
110,000
Waste and hazardous disposals
25
45
30
250,000
Quality inspections
30
35
35
75,000
Utilities (machine hours)
2,000
7,000
1,000
66,000
Total
$
510,000
Required:
1. Determine the manufacturing cost per unit for each of the products using the volume-based method.
2. What is the least profitable and the most profitable product under both the current and the ABC systems?
3. What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price with the actual selling price.
Requiremnt 1
Determine the manufacturing cost per unit for each of the products using the volume-based method. (Round your answers to 2 decimal places.)
Product A
Product B
Product C
Materials
Labor
Overhead
Total cost
$0.00
$0.00
$0.00
Requirement 2
What is the least profitable and the most profitable product under both the current and the ABC systems?
Current Cost Data
ABC Costing System
Most profitable product
Least profitable product
Requiremtn 3
What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price with the actual selling price. (Round your intermediate calculations and final answers to 2 decimal places.)
Product A
Product B
Product C
Product costs:
Activity system
ABC- based product pricing:
Target price
Actual selling price
Difference in price
$0.00
$0.00
$0.00
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
