Accounting 515:
Assignment 4, Chapter 5

(5-19)
A. Capacity cost rate = $50 per hour.
B. Annual activity-based cost for Division 1’s customers= $225,000
C. Annual activity-based cost associated with Division 2’s customers= $7,000
D. Hours required to maintain file= 250 hours (half of the customers)
Hours to process invoices manually= 2,000 hours
Hours to be processed electronically= 200 hours
Cost of division 1= $112,500, yes cost will decrease by half.
(5-30)
A. Cost driver rate for this year= $20 per labor hour
B. Cost to manufacture one of each unit
Deluxe= $105
Regular= $60
C. Deluxe= $99 per unit
Regular= $12.63 per unit
D. I think the old system undercost the deluxe model because they were testing the marketplace and were unsure as to how the product would be received by the consumer and secondly because the company was hoping to generate what they thought would be a high return on the regular model because the original model is what the company is known for.
E. No, the deluxe model is not as profitable under the old costing system because the cost per unit to manufacture compared to expected sales does even break even. The company will only make $205,000 back on the deluxe model.
F. The company should either find a way to reduce manufacturing cost or increase the price of the deluxe model. If the company decides to increase the price, they should increase the features on the deluxe model. If the company decides to somehow reduce manufacturing cost, this should be implemented by whomever is the product designer because they can perhaps recommend cheaper materials or means of producing the product. In regards to adding