Reference no: EM13665068

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?