Question

Jordan Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Jordan uses an activity-based costing system. The following are the relevant cost data for the previous month: Direct Cost per Unit Direct materials Direct labor Model ZM $20.70 29.40 Model DS $7.00 9.00 Category Unit level Batch level Product level Facility level Total Estimated cost $ 25,960 49,920 90,000 180,000 $ 345,880 Cost Driver Number of units Number of setups Number of TV commercials Number of machine hours Use of Cost Driver ZM: 2,500 units; DS: 9,300 units ZM: 26 setups; DS: 26 setups ZM: 14; DS: 11 ZM: 300 hours; DS: 600 hours Jordan’s facility has the capacity to operate 2,700 machine hours per month.

Answer 1

Activity Rate
Activity		Total Cost	Cost Driver	Activity rate
Unit Level		25,960	11800	2.20
Batch Level	49,920	52	960
Product Level	90,000	25	3,600
Facility Level	1,80,000	900	200
Allocation of overheads and overheads per unit
Activity		Rate	Product ZM	Product DS
			Activity	Cost	Activity	Cost
Unit Level		2.2	2500	5500	9300	20460
Batch Level	960	26	24960	26	24960
Product Level	3600	14	50400	11	39600
Facility Level	200	300	60000	600	120000
	Total Overheads allocated	140860		205020
	Divide: Units Produced	2500		9300
	OH cost per unit		56.34		22.05
Req a.
Cost per unit
Product	DM +	DL +	Allocated=	Total
			overheads
ZM	20.70 +	29.40+	56.34 =	106.44
DS	7 +	9 +	22.05 =	38.05
Req b.
Profit (loss)
			Product ZM	Product DS
Selling price		118	68
Cost per unit		106.44	38.05
Profit per unit		11.56	29.95
Multiply: Units sold		2500	9300
Total Profits		28900	278535
			Amount $
Model ZM	Profit	28,900
Model DS		Profit	2,78,535
Req c.
Target Cost pr unit
			Product ZM	Product DS
Selling price per unit		113	34
Less: Target profit @30%	33.9	10.2
Target Cost per unit		79.1	23.8