Brilliant Accents Company Manufactures and Sells Three Styles of Kitchen

question 105

Essay

Brilliant Accents Company manufactures and sells three styles of kitchen faucets: Brass,Chrome,and White.Production takes 25,25,and 10 machine hours to manufacture 1000-unit batches of brass,chrome and white faucets,respectively.The following additional data apply:
$\begin{array}{llll}&\text { BRASS }&\text { CHROME }&\text { WHITE }\\\text { Projected sales in units }& 30,000 & 50,000 & 40,000\\\\\text { PER UNIT data: }\\\text { Selling price } & \$ 40 & \$ 20 & \$ 30 \\\text { Direct materials } & \$ 8 & \$ 4 & \$ 8 \\\text { Direct labor }& \$ 15 & \$ 3 & \$ 9 \\\text { Overhead cost based on direct labor hours } \\\text { (traditional system) }& \$ 12 & \$ 3 & \$ 9\\\\\text { Hours per 1000-unit batch: }\\\text { Direct labor hours } & 40 & 10 & 30 \\\text { Machine hours } & 25 & 25 & 10 \\\text { Setup hours } & 1.0 & 0.5 & 1.0 \\\text { Inspection hours } & 30 & 20 & 20\end{array}$
$\text { Total overhead costs and activity levels for the year are estimated as follows: }$

$\begin{array}{lrr}\text { Activity }& \text { Overhead costs } & \text { Activity levels }\\\text { Direct labor hours } & & 2,900 \text { hours } \\\text { Machine hours } & & 2,400 \text { hours } \\\text { Setups } & \$ 465,500 & 95 \text { setup hours } \\\text { Inspections } & \$ 405,000 & 2,700 \text { inspection hours }\\&\$870,500\end{array}$ Required:
a.Using the traditional system,determine the operating profit per unit for each style of faucet.
b.Determine the activity-cost-driver rate for setup costs and inspection costs.
c.Using the ABC system,for each style of faucet
1.compute the estimated overhead costs per unit.
2.compute the estimated operating profit per unit.
d.Explain the differences between the profits obtained from the traditional system and the ABC system.Which system provides a better estimate of profitability? Why?

---

Definitions:

Specific Criteria

Detailed and precise standards or conditions that must be met for a particular purpose or task.

Causal Mechanism

The process or series of events that explains how and why one factor leads to or influences an outcome.

Descriptive Label

is a description or label that provides information about the characteristics or contents of something without implying a judgement.

Signs and Symptoms

Indicators that something is not normal within the body, with signs being observable to others and symptoms being experienced by the individual.