Silva Chairs, Inc. makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an economical product designed for family use. Jane Silva, the president, is worried about cut-throat price competition in the chairs market. Her company suffered a loss last quarter, an unprecedented event in its history. The company's accountant prepared the following cost data for Ms. Silva: Model Diamond (D) $45 per unit $24/hour x 2 hours production time Direct Cost per Unit Model Gold (G) Direct materials $30 per unit $24/hour × 1 hour production time Direct labor Estimated Cost Cost Driver Number of units Number of setups Use of Cost Driver Category Unit level $ 300,000 750,000 450,000 500,000 D: 15,000 units; G: 35,000 units D: 104 setups; G: 146 setups D: 5; G: 10 D: 1,500 hours; G: 3,500 hours Batch level Product level Number of TV commercials Facility level Number of machine hours Total $2,000,000 The market price for office chairs comparable to Model Diamond is $180 and to Model Gold is $11O. Required a. Compute the cost per unit for both products. b. Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 150 units of Model Diamond per batch and 245 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion. (For all requirements, round intermediate calculations and final answers to 2 decimal places.)
Silva Chairs, Inc. makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an economical product designed for family use. Jane Silva, the president, is worried about cut-throat price competition in the chairs market. Her company suffered a loss last quarter, an unprecedented event in its history. The company's accountant prepared the following cost data for Ms. Silva: Model Diamond (D) $45 per unit $24/hour x 2 hours production time Direct Cost per Unit Model Gold (G) Direct materials $30 per unit $24/hour × 1 hour production time Direct labor Estimated Cost Cost Driver Number of units Number of setups Use of Cost Driver Category Unit level $ 300,000 750,000 450,000 500,000 D: 15,000 units; G: 35,000 units D: 104 setups; G: 146 setups D: 5; G: 10 D: 1,500 hours; G: 3,500 hours Batch level Product level Number of TV commercials Facility level Number of machine hours Total $2,000,000 The market price for office chairs comparable to Model Diamond is $180 and to Model Gold is $11O. Required a. Compute the cost per unit for both products. b. Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 150 units of Model Diamond per batch and 245 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion. (For all requirements, round intermediate calculations and final answers to 2 decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Silva Chairs, Inc. makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an
economical product designed for family use. Jane Silva, the president, is worried about cut-throat price competition in the chairs
market. Her company suffered a loss last quarter, an unprecedented event in its history. The company's accountant prepared the
following cost data for Ms. Silva:
Direct Cost per Unit
Model Diamond (D)
$45 per unit
$24/hour x 2 hours production time
Model Gold (G)
$30 per unit
$24/hour x 1 hour production time
Direct materials
Direct labor
Estimated Cost
Cost Driver
Use of Cost Driver
Category
Unit level
Number of units
300,000
750,000
450,000
500,000
D: 15,000 units; G: 35,000 units
D: 104 setups; G: 146 setups
D: 5; G: 10
D: 1,500 hours; G: 3,500 hours
Batch level
Number of setups
Product level
Number of TV commercials
Facility level
Number of machine hours
$2,000,000
Total
The market price for office chairs comparable to Model Diamond is $180 and to Model Gold is $110.
Required
a. Compute the cost per unit for both products.
b. Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 150 units of Model Diamond per batch and 245
units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup
cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion.
(For all requirements, round intermediate calculations and final answers to 2 decimal places.)
Type of Product
Cost Per Unit
a. Model Diamond
Model Gold
b. Model Diamond
odel Gold
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