Eastern Chemical Company produces three products. The operating results of the current year are: Sales Product Quantity Actual Price $ 302.00 1,850 9,250 925 Target Price $ 301.00 313.60 218.50 271.60 326.00 Direct materials Direct labor Total prime cost The firm sets the target price of each product at 150% of the product's total manufacturing cost. It appears that the firm was able to sell Product Cat a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has the greatest potential among the firm's three products because the actual selling price of Product C was almost 50 % higher than the target price, while the firm was forced to sell Product B at a price below the target price. Both the budgeted and actual factory overhead for the current year are $847,300. The actual units sold for each product also are the same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct labor costs per unit for each product are: Product A $66.00 Difference $1.00 (42.00) $ 107.50 $ 102.00 Number of setups Weight of direct materials (pounds) Product B $ 130.40 28.00 $ 158.40 Product C $ 81.00 18.50 $ 99.50 The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the following usage of factory overhead during the year: Product A 416 Product 266 Product C 4 366 Total Overhead $ 8,300 203,500
Eastern Chemical Company produces three products. The operating results of the current year are: Sales Product Quantity Actual Price $ 302.00 1,850 9,250 925 Target Price $ 301.00 313.60 218.50 271.60 326.00 Direct materials Direct labor Total prime cost The firm sets the target price of each product at 150% of the product's total manufacturing cost. It appears that the firm was able to sell Product Cat a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has the greatest potential among the firm's three products because the actual selling price of Product C was almost 50 % higher than the target price, while the firm was forced to sell Product B at a price below the target price. Both the budgeted and actual factory overhead for the current year are $847,300. The actual units sold for each product also are the same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct labor costs per unit for each product are: Product A $66.00 Difference $1.00 (42.00) $ 107.50 $ 102.00 Number of setups Weight of direct materials (pounds) Product B $ 130.40 28.00 $ 158.40 Product C $ 81.00 18.50 $ 99.50 The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the following usage of factory overhead during the year: Product A 416 Product 266 Product C 4 366 Total Overhead $ 8,300 203,500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Topic Video
Question
Transcribed Image Text:Eastern Chemical Company produces three products. The operating results of the current year are:
Actual
Price
Sales
Product Quantity
B
C
1,858
9,250
925
Target
Price
$ 381.00
313.60
218.50
Direct materials
Direct labor
Total prime cost
$
The firm sets the target price of each product at 150% of the product's total manufacturing cost. It appears that the firm was able to sell
Product Cat a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to
promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has
the greatest potential among the firm's three products because the actual selling price of Product C was almost 50% higher than the
target price, while the firm was forced to sell Product B at a price below the target price.
382.88
271.60
326.00
Both the budgeted and actual factory overhead for the current year are $847,300. The actual units sold for each product also are the
same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct
labor costs per unit for each product are:
Product costs:
Product A
$66.08
36.00
82.8
Number of setups
Weight of direct materials (pounds)
Waste and hazardous disposals
Quality inspections
Utilities (machine hours)
Total
Difference
$1.00
(42.00)
$187.50
The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the
following usage of factory overhead during the year:
Activity system
ABC-based product pricing:
Target price
Actual selling price
Diffe
in price
Product B
$ 130.48
28.08
8.48
Required 3
Complete this question by entering your answers in the tabs below.
Product C
$ 81.00
18.50
99.50
Product A Product B
3
6
416
266
41
61
46
51
3,700
8,600
Required:
1. Determine the manufacturing cost per unit for each of the products using the volume-based method.
2. What is the least profitable and the most profitable product under both the current and the ABC systems?
3. What is the new torget price for each product based on 150% of the new costs under the ABC system? Compare this price with the
actual selling price.
Required 1
Required 2
What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price
with the actual selling price. (Round your intermediate calculations and final answers to 2 decimal places.)
Product A
$
Product B
< Required 2
.00
Product C
Product C
4
366
46
51
1,850
S
0.00
Total
Overhead
$ 8,300
283,588
462,500
91,000
82,000
$ 847,300
Required 3 >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education