Reference no: EM131911625

Problem

Marklex Company produces a variety of electronic products. One of its plants produces two laser printers, the Super and the Regular. At the beginning of the year, the following data were prepared for these products.

Item	Super Printer	Regular Printer
Units produced	50,000	400,000
Sales price per unit	$480.00	$300.00
Direct materials cost per unit	$30.00	$25.00
Direct labor cost per unit	$130.00	$85.00
Factory overhead costs per unit	$100.00	$100.00

Factory overhead costs per unit were determined using a plant-wide rate based on direct labor hours.

The marketing manager is impressed with the per unit profitability of the Super Printer, and suggested the company should place more emphasis on producing and selling this product. The plant manager disagreed, arguing the factory overhead costs per unit for the Super Printer are understated.

To investigate the plant manager's claims, the company hired a consulting firm to gather data in order to implement activity-based costing. The following data were obtained.

Overhead activity	Activity driver	Activity Cost	Usage: Super Printer	Usage: Regular Printer
Setup costs	Number of setups	$840,000	200 setups	100 setups
Machine costs	Machine hours	$30,000,000	100,000 machine hours	400,000 machine hours
Engineering costs	Engineering hours	$6,600,000	45,000 engineering hours	120,000 engineering hours
Packing costs	Number of orders	$5,000,000	50,000 orders	200,000 orders

Required:

Answer the questions below and show all computations. Answers requiring dollar amounts should be rounded to the nearest cent. Use one decimal place for answers requiring a percentage.

1) Refer to the first data table. Determine gross profit per unit and gross profit percentage for both the Super Printer and the Regular Printer, with factory overhead allocated using a plant-wide rate based on direct labor hours.

2) Refer to the second data table. Calculate the activity rate for each overhead activity.

3) Allocate overhead costs to both the Super Printer and the Regular Printer, based on overhead activity usage.

4) Determine gross profit per unit and gross profit percentage for both the Super Printer and the Regular Printer, with factory overhead allocated using activity-based costing. Use the amounts for direct materials and direct labor costs per unit from the first data table.

5) In light of the revised profitability for each product determined using activity-based costing, evaluate the marketing manager's suggestion to emphasize producing and selling the Super Printer.