A. Calculate the budgeted full production cost per unit of each product using Ashley Co’s current method of absorption costing.B. Calculate the budgeted full production cost per unit of each product using activity-based costing. Ashley Co manufactures three products, A, B and C. Demand for products A and B is relatively elasticwhilst demand for product C is relatively inelastic. Each product uses the same materials and the sametype of direct labor but in different quantities. For many years, the company has been using fullabsorption costing and absorbing overheads on the basis of direct labor hours. Selling prices are thendetermined using cost plus pricing. This is common within this industry, with most competitorsapplying a standard mark-up.Budgeted production and sales volumes for A, B and C for the next year are 30,000 units, 24,000units and 33,000 units respectively. The budgeted direct costs of the three products are shown below:Direct MaterialDirect labor ($24 per hour)per unitProductper unitA$50$56$60В$72$44$48The following additional data relate to each product:ProductBatch size (units) No of purchase orders per batchMachine hours per unitA50041.5В80051.2540041.4In the next year, Ashley Co also expects to incur indirect production costs of $1,377,400, which areanalysed as follows:Cost poolsMachine set up costsMaterial ordering costsMachine running costsGeneral facility costsCost driversCost amount$560,000 Number of batches$632,000 Number of purchase orders$840,000 Number of machine hours$722.800 Number of machine hours$2,754,800Ashley Co wants to boost sales revenue in order to increase profits but its capacity to do this is limitedbecause of its use of cost plus pricing and the application of the standard mark-up. The financedirector has suggested using activity based costing (ABC) instead of full absorption costing, sincethis will alter the cost of the products and may therefore enable a different price to be charged.Required:

It is assume that total machine hrs. is 120,000.

Ashley Co manufactures three products, A, B and C. Demand for products A and B is relatively elastic whilst demand for product C is relatively inelastic. Each product uses the same materials and the same type of direct labor but in different quantities. For many years, the company has been using full absorption costing and absorbing overheads on the basis of direct labor hours. Šelling prices are then determined using cost plus pricing. This is common within this industry, with most competitors applying a standard mark-up. Budgeted production and sales volumes for A, B and C for the next year are 30,000 units, 24,000 units and 33,000 units respectively. The budgeted direct costs of the three products are shown below: Direct Material per unit $50 $56 $44 Product Direct labor ($24 per hour) per unit $60 $72 $48 A В C The following additional data relate to each product: Product A. B C Batch size (units) No of purchase orders per batch | Machine hours per unit 4 5 4 500 1.5 1.25 800 400 1.4 In the next year, Ashley Co also expects to incur indirect production costs of $1,377,400, which are analysed as follows: Cost pools | Machine set up costs Material ordering costs Machine running costs General facility costs Cost amount Cost drivers $560,000 Number of batches $632,000 Number of purchase orders $840,000 Number of machine hours $722.800 Number of machine hours $2,754,800 Ashley Co wants to boost sales revenue in order to increase profits but its capacity to do this is limited because of its use of cost plus pricing and the application of the standard mark-up. The finance director has suggested using activity based costing (ABC) instead of full absorption costing, since this will alter the cost of the products and may therefore enable a different price to be charged. Required:

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter11: Linear Optimization Models

Section: Chapter Questions

Problem 10P: The management of Hartman Company is trying to determine the amount of each of two products to...