Reference no: EM132743791
Problem - Pulsar Ltd manufactures two types of computer monitors: Office and Gaming and applies manufacturing overhead to all units at the rate of $80 per machine hour. Information about the two products are as follows:
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Office
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Gaming
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Expected volume (units)
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6,000
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10,000
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Direct material cost per unit
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$40
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$65
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Direct labor cost per unit
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25
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25
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The data on the activities required for producing all units of Office and Gaming monitors for the year are as follows:
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Activity
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Office
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Gaming
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Total
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Cost driver
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Production set up
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60
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40
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100
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No of setups
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Machining
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15,000
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30,000
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45,000
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Machine hours worked
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Inspection
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120
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80
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200
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No of inspections
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The firm's total overhead of the company is traced to the following activities: production setups, $300,000; machining, $2,430,000; and inspection, $870,000.
Required -
(a) Based on traditional costing, calculate the total cost of producing one unit of Office monitor and one unit of Gaming monitor. (Hint: what is the machine hour per unit?)
(b) Calculate the activity-based overhead rates. What is the overhead cost assigned to one unit of Office monitor and to one unit of Gaming monitor under activity-based costing?
(c) Based on your calculations in (a) and (b), recommend to management which costing sys- tem (traditional or ABC) should be adopted by the company. Provide two reasons for your recom- mendation.
(d) Identify which of the above activities are non-value added and advise management what to do with those activities. Your advice should be specific to the company.
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