The management team at Diamondz, Inc., a manufacturer of fine jewelry, is gearing up for their new fiscal year. Part of their yearly process includes analyzing the past year's performance and seeking ways to improve upon existing processes. Diamondz specializes in two products: diamond rings and diamond necklaces. Management has decided that they would like to begin using Activity-Based Costing (ABC) for budgeting their Manufacturing Overhead (MOH) costs. They have narrowed their key activities to the following:
Diamondz has determined that the 18,900 rings they produce will use the following: $130,000 of direct materials, $52,600 of direct labor, 6,200 setups, 12,400 inspections, 26,350 machine hours, and 12,444 square feet. The 15,680 necklaces they produce will use the following: $227,400 of direct materials, $86,700 of direct labor, 3,800 setups, 9,060 inspections, 16,350 machine hours, and 7,556 square feet.
What is the total per-unit cost for the diamond necklaces? (If required, round calculations to two decimal places.)

Question

The management team at Diamondz, Inc., a manufacturer of fine jewelry, is gearing up for their new fiscal year. Part of their yearly process includes analyzing the past year's performance and seeking ways to improve upon existing processes. Diamondz specializes in two products: diamond rings and diamond necklaces. Management has decided that they would like to begin using Activity-Based Costing (ABC) for budgeting their Manufacturing Overhead (MOH) costs. They have narrowed their key activities to the following:
 Diamondz has determined that the 18,900 rings they produce will use the following: $130,000 of direct materials, $52,600 of direct labor, 6,200 setups, 12,400 inspections, 26,350 machine hours, and 12,444 square feet. The 15,680 necklaces they produce will use the following: $227,400 of direct materials, $86,700 of direct labor, 3,800 setups, 9,060 inspections, 16,350 machine hours, and 7,556 square feet.
What is the total per-unit cost for the diamond necklaces? (If required, round calculations to two decimal places.)

Quizplus · Accepted Answer

This question requires a number of steps to obtain the final answer of the total product costs. First, calculate the activity rate for each of the key MOH activities: Setups, $36,200/10,000 setups = $3.62/setup; Quality Inspection, $49,820/21,460 inspections = $2.32/inspection; Machining, $54,808/42,700 machine hours = $1.28/hour; and Factory Utilities, $32,490/20,000 square feet = $1.62/square foot. Next, calculate the total overall MOH cost allocated to diamond necklaces: ($3.62 × 3,800 setups) + ($2.32 × 9,060 inspections) + ($1.28 × 16,350 hours) + ($1.62 × 7,556 square feet) = $13,756.00 + $21,019.20 + $20,928.00 + $12,240.72 = $67,943.92. Next, add the direct materials and direct labor costs to the total allocated MOH costs: $67,943.92 + $227,400.00 + $86,700.00 = $382,043.92. Lastly, divide the total manufacturing costs by the number of diamond necklaces they intend to manufacture: $382,043.92/15,680 = $24.37/necklace (Choice D).

The Management Team at Diamondz, Inc