Brilliant Accents Company Manufactures and Sells Three Styles of Kitchen

question 43

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 1,000-unit batches of brass,chrome,and white faucets,respectively.The following additional data apply:
$\begin{array}{llll}&\text { BRASS}&\text { CHROME }&\text {WHITE }\\\text { Projected sales in units } & 30,000 &50,000 & 40,000\\\\\text { PER UNIT data: }\\\text { Selling price } & \$ 40 & \$ 20 & \$ 30 \\\text { Direct materials } & \$ 8 & \$ 4 & \$ 8 \\\begin{array}{l}\text { Direct labor }\end{array} & & \\\begin{array}{l}\text { Overhead cost based on direct labor hours } \\\text { (traditional system) }\end{array} & \$ 15 & \$ 3 & \$ 9\\\\\text { Hours per 1000-unit batch: }\\\text { Direct labor hours } & 40 & 10 & 30 \\\text { Machine hours } & 25 & 25 & 10 \\\text { Setup hours } & 1.0 & 0.5 & 1.0 \\\text { Inspection hours } & 30 & 20 & 20\end{array}$ 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 the brass style of faucet.
b.Determine the activity-cost-driver rate for setup costs and inspection costs.
c.Using the ABC system,for the brass style of faucet:
1.compute the estimated overhead costs per unit.
2.compute the estimated operating profit per unit.
d.Explain the difference between the profits obtained from the traditional system and the ABC system.Which system provides a better estimate of profitability? Why?

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Definitions:

Rotates

The action of moving around an axis or center point, typically described in the context of physical objects or movements in space.

Contraction

A shortening and tightening of a muscle or muscle group, which may occur as a natural part of physical activity or as a result of certain medical conditions.

MG

Could refer to myasthenia gravis, a chronic autoimmune neuromuscular disorder that causes weakness in the skeletal muscles.

Compresses

Pieces of material, often cloth, applied under pressure to a specific area of the body to relieve discomfort or stop bleeding.