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:

Total overhead costs and activity levels for the year are estimated as follows:

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?

Question

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:
  
Total overhead costs and activity levels for the year are estimated as follows:
  
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?

Quizplus · Accepted Answer

The Answer of 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:
  
Total overhead costs and activity levels for the year are estimated as follows:
  
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?

Brilliant Accents Company Manufactures and Sells Three Styles of Kitchen