Brilliant Accents Company Manufactures and Sells Three Styles of Kitchen

Essay

Brilliant Accents Company manufactures and sells three styles of kitchen taps: brass,chrome and white.Production takes 25,25 and 10 machine hours to manufacture 1000-unit batches of brass,chrome and white taps,respectively.The following additional data apply:
$\begin{array}{lrrr}&\text { BRASS}&\text { CHROME }&\text { WHITE }\\ \text { Projected sales in units } & 30000 & 50000 & 40000\\\\\underline{\text {PER UNIT data:}}\\\text {Selling price}& \$ 40 &\$ 20 & \$ 30\\\\\text { Direct materials } & \$ 8 & \$ 4 & \$ 8 \\\text { Direct labour } & \$ 15 & \$ 3 & \$ 9 \\\text { Overhead cost based on direct labour hours } & & & \\\text { (traditional system) } & \$ 12 & \$ 3 & \$ 9\end{array}$


$\text { Hours per } 1000 \text {-unit batch: }$
$\begin{array}{lrrr}\text { Direct labour hours } & 40 & 10 & 30 \\\text { Machine hours } & 25 & 25 & 10 \\\text { Set-up hours } & 1.0 & 0.5 & 1.0 \\\text { Inspection hours } & 30 & 20 & 20\end{array}$


$\begin{array}{lrr}\text { Activity }&\text { Overhead costs } &\text { Activity levels }\\\hline\text { Direct labour hours } & 2900 \text { hours } \\\text { Machine hours } & 2400 \text { hours } \\\text { Set-ups } & \$ 465500 & 95 \text { set-up hours } \\\text { Inspections } & \$ 405000 & 2700 \text { inspection hours }\end{array}$
Required:
a.Using the traditional system,determine the operating profit per unit for each style of tap.
b.Determine the activity-cost-driver rate for set-up costs and inspection costs.
c.Using the ABC system,for each style of tap:
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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