ABC AND CVP

Question

ABC AND CVP

Manu · Accepted Answer

Step 1: Calculate Fixed Costs From the given data, the fixed costs are: Fixed labor benefits: $0 Fixed machine costs: $199,000 Fixed receiving department costs: $235,000 Fixed packing department costs: $133,000 Total fixed costs = $199,000 + $235,000 + $133,000 = $567,000 Step 2: Calculate Variable Costs per Unit Total variable costs: Direct labor benefits: $168,960 Variable machine costs: $291,840 Total variable costs = $168,960 + $291,840 = $460,800 Distribution based on direct labor hours: Total direct labor hours for Rose: 32,000 Total direct labor hours for Violet: 6,400 Total direct labor hours: 32,000 + 6,400 = 38,400 Variable cost per direct labor hour = $460,800 / 38,400 = $12 For Rose: Direct labor cost per case: $8 Material cost per case: $53 Variable overhead per case: $12 * (32,000 / 57,000) = $6.74 Total variable cost per case for Rose = $8 + $53 + $6.74 = $67.74 For Violet: Direct labor cost per case: $7 Material cost per case: $40 Variable overhead per case: $12 * (6,400 / 11,400) = $6.74 Total variable cost per case for Violet = $7 + $40 + $6.74 = $53.74 Step 3: Break-even Calculation The break-even formula is: Break-even units = Fixed Costs Selling Price per Unit − Variable Cost per Unit Break-even units = Selling Price per Unit − Variable Cost per Unit Fixed Costs ​ For Rose: Break-even cases = 567 , 000 103 − 67.74 = 567 , 000 35.26 ≈ 16 , 080 Break-even cases = 103 − 67.74 567 , 000 ​ = 35.26 567 , 000 ​ ≈ 16 , 080 For Violet: Break-even cases = 567 , 000 80 − 53.74 = 567 , 000 26.26 ≈ 21 , 593 Break-even cases = 80 − 53.74 567 , 000 ​ = 26.26 567 , 000 ​ ≈ 21 , 593 Activity-Based Approach Step 1: Allocate Fixed Costs Based on Activities Receiving Orders: Total orders = 52 (Rose) + 28 (Violet) = 80 Cost per order = $235,000 / 80 = $2,937.50 Packing Orders: Total orders = 99 (Rose) + 47 (Violet) = 146 Cost per order = $133,000 / 146 = $911.64 Fixed Machine Costs: Total machine hours = 10,600 (Rose) + 2,550 (Violet) = 13,150 Cost per hour = $199,000 / 13,150 = $15.13 Step 2: Allocate Fixed Costs to Each Product For Rose: Receiving orders cost = 52 * $2,937.50 = $152,750 Packing orders cost = 99 * $911.64 = $90,252.36 Fixed machine costs = 10,600 * $15.13 = $160,378 Total allocated fixed costs for Rose = $152,750 + $90,252.36 + $160,378 = $403,380.36 For Violet: Receiving orders cost = 28 * $2,937.50 = $82,250 Packing orders cost = 47 * $911.64 = $42,847.08 Fixed machine costs = 2,550 * $15.13 = $38,831.50 Total allocated fixed costs for Violet = $82,250 + $42,847.08 + $38,831.50 = $163,928.58 Step 3: Activity-Based Break-even Calculation For Rose: Break-even cases = 403 , 380.36 103 − 67.74 = 403 , 380.36 35.26 ≈ 11 , 436 Break-even cases = 103 − 67.74 403 , 380.36 ​ = 35.26 403 , 380.36 ​ ≈ 11 , 436 For Violet: Break-even cases = 163 , 928.58 80 − 53.74 = 163 , 928.58 26.26 ≈ 6 , 243 Break-even cases = 80 − 53.74 163 , 928.58 ​ = 26.26 163 , 928.58 ​ ≈ 6 , 243 Summary Conventional Approach: Break-even cases of Rose: 16,080 Break-even cases of Violet: 21,593 Activity-Based Approach: Break-even cases of Rose: 11,436 Break-even cases of Violet: 6,243

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