Essay About Direct Material Costs And Simple Desk

Management Accounting Case Study
Simple Desk(per Unit)Corner Workstation(per Unit)Direct material Costs$96$497Direct Manufacturing labour costs918Manufacturing overheads:Design and plan the production process12.5100Make layered panels35.5192.5Handle material1020Setup machine2.510Run machine52182Inspect and package4040Total unit manufacturing costs$257.5$1059.5Part 11.Under ABC costing, the unit manufacturing cost of Simple Desk is lower than under simple costing, and the unit production cost of Corner Workstation is higher than under simple costing. The simple costing assigns manufacturing overhead only based on the direct manufacturing labour hours, it negates other cost drivers which may contribute to the cost of product. Therefore, simple desk is over-cost and corner workstation is under-cost. However, when using the ABC method, it can have a greater accuracy, it selects a more cause-and-effect cost pool, and also have a greater understanding of overhead costs.2. They should base on the ABC costing to evaluate their pricing of simple desk and corner workstation.Simple Desk Corner workstationTotal unit manufacturing cost$257.5$1059.5Selling price (60% markup)$412$1695.2Gross margin (%)37.5%37.5%3. Incremental revenues of Multi-Pack Desk with Shelves in2010:Revenues:$720,000Direct materials$315,000Direct manufacturing labor cost13,500Design and plan the production process131,250Additional nonmanufacturing costs180,000Total cost(639750)Incremental revenue80,250