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?

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Definitions:

Customer Needs

The recognized desires or requirements of consumers that businesses aim to fulfill with their products or services.

Transportation Costs

Expenses incurred in the process of moving goods from one location to another, including fuel, labor, and maintenance of vehicles.

Last Mile Delivery

Last mile delivery is the final step of the delivery process from a distribution center or facility to the end user, often representing the most challenging and costly part of logistics.

Direct Shipping

A method of delivery where goods are transferred from the manufacturer directly to the customer, bypassing any intermediate warehouses or stores.