The Following Data Pertains to the Montrose Company's Three Products

question 17

Multiple Choice

The following data pertains to the Montrose Company's three products: $$\begin{array} { l r r r } & \mathrm { M } & \mathrm { N } & \mathrm { O } \\\text { Unit sales per month } & \underline { 9,000 } & \underline { 14,000 } & \underline { 8,000 } \\\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \\\text { Variable costs per unit } & \underline { 3.00 } & \frac { 9.00 } { 2.00 } & \underline { 7.00 } \\\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$ 0.50 \\\text { Batches } & 5 & 10 & 5 \\\text { Setups } & 6 & 3 & 1 \\\text { Direct fixed costs } & & & \\\text { Advertising } & \$ 3,000 & \$ 2,000 & \$ 1,000 \\\text { Supervision } & 5,000 & 5,000 & 5,000 \\\text { Common fixed costs } & & & \\\text { Inspecting products } ( \$ 10,000 ) & & & \\\text { Materials handling } ( \$ 4,000 ) & & & \\\text { Customer service } ( \$ 5,000 ) & & & \\\text { Plant depreciation } ( \$ 6,000 ) & & & \\\text { General administration } ( \$ 8,000 ) & & &\end{array}$$ When Montrose converted over to ABC it discovered the following: $$\begin{array} { l c l } \text { Inspecting products } & - & \begin{array} { l } 20 \% \text { of the inspection activity was unused. The } \\\text { inspections used were based on the number of batches } \\\text { produced. }\end{array} \\\text { Materials handling } & - & \begin{array} { l } 10 \% \text { of the materials handling activity was unused. } \\\text { The materi als handling activi ty used was based on the } \\\text { number of production runs. }\end{array} \\\text { Customer service } & - & \begin{array} { l } 50 \% \text { of the customer service activity was unused. The } \\\text { usage was given as follows: M } 1,000 , N 1000,0500 \\\text { facility level cost } \\\end{array}\\\text { General administration }&-&\text { facility level cost }\end{array}$$ The product margin for product M using ABC would be

• A)$9,000.
• B)$19,000.
• C)$13,840.
• D)$27,000.

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Definitions:

Direct Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standardized expected quantity, valued at the standard cost per unit.

Direct Materials

Raw materials that are directly traceable to the production of a specific product and are significant in cost.

Favorable

A term usually used in finance and accounting to describe results that are better than anticipated or that result in a benefit.

Standard Direct Materials Costs

The budgeted or standard cost of the raw materials required to produce a unit of product.