Fastchip, Inc. manufactures two computers: the FC-PC which sells for $2,000, and the FC-laptop, which sells for $4,200. The production cost per unit for each computer in 2013 was as follows:

 

FC-PC

FC-laptop

Direct Materials

$1,260

$3,040

Direct Labor ($25 per hour)

200

300

Manufacturing overhead ($10 per DLH)

80

120

Total per unit cost

$1,540

53,460

 

 

 

In 2013, Fastchip manufactured 20,000 units of the FC-PC and 15,000 units of the FC-laptop. The overhead rate of $10 per direct labor hour was determined by dividing the total expected manufacturing overhead of $3,400,000 by the total direct labor hours (340,000) for the two computers.

The gross profit and gross profit rate on the computers were: FC-PC $460 ($2,000 − $1,540) and 23% ($460/$2,000); and FC-laptop $740 ($4,200 − $3,460) and 17.62% ($740/$4,200). Because of the lower profit margin on the FC-laptop, management is considering phasing out the FC-laptop and increasing the production of the FC-PC.

Before finalizing its decision, management asks the controller of Fastchip to prepare an analysis using activity-based costing. The controller accumulates the following information about overhead for the year ended December 31, 2013:

 

 

 

Cost

 

 

 

Total

Driver

Overhead

Activity

Cost Driver

Cost

Volume

Rate

Ordering raw materials

of orders

$ 100,000

80

$1,250

Receiving raw materials

of shipments.

$ 120,000

75

$1,600

Materials handling

weight of materials

$ 600,000

60,000 11)s

$ 10

Production scheduling

of orders

 

 

$ 2.86

Machining

machine hours

$ 100,000

35,000

$ 400

Quality control

of inspections

$ 800,000

2,000

 

inspections

of employees

 

 

 

Factory supervision

Cost Driver

$1,200,000

10,000

$ 120

Activity

of orders

$ 480,000

250

$1,920

The cost driver volume for each product was:

Cost driver

FC-PC

Fc laptop

total

of orders

60

20

80

-4 of shipments

50

25

75

weight of materials

40,000 lbs.

20,000 lbs.

60,000 lbs.

of orders

20,000

15,000

35,000

machine hours

1,100

900

2,000

of inspections

8,000

2,000

10,000

of employees

150

100

250

Instructions

(a) Assign the total 2013 manufacturing overhead costs to the two products using activity-based costing (ABC).

(b) What was the cost per unit, gross profit, and gross profit rate of each model using ABC costing?