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Tiger Pride produces two product? lines: T−shirts and Sweatshirts
Tiger Pride produces two product? lines: T−shirts and Sweatshirts. Product profitability is analyzed as? follows:
T−SHIRTS
SWEATSHIRTS
Production and sales volume
?64,000 units
?40,000 units
Selling price
?$16.00
?$29.00
Direct material
?$2.50
?$5.00
Direct labor
?$4.30
?$7.20
Manufacturing overhead
?$1.70
?$3.00
Gross profit
?$7.50
?$13.80
Selling and administrative
?$4.30
?$7.00
Operating profit
?$3.20
?$6.80
Tiger? Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost? information:
Activity
Activity cost
Activity−cost driver
Supervision
?$107,520
Direct labor hours? (DLH)
Inspection
?$70,200
Inspections
Activities demanded
T−SHIRTS
SWEATSHIRTS
0.75? DLH/unit
1.20? DLH/unit
?48,000 DLHs
?48,000 DLHs
?40,000 inspections
?18,500 inspections
Under the revised ABC? system, overhead costs per unit for the Sweatshirts will be? ________. (Do not round interim calculations. Round the final answer to the nearest? cent)
A.
?$1.19 per unit
B.
?$1.58 per unit
C.
?$1.90 per unit
D.
?$1.20 per unit
Expert Solution
Total overhead cost = Supervision + Inspection
= (48,000 direct labor hours * $1.12 per direct labor hour) + (18,500 inspections * $1.2 per inspection)
= $53,760+$22,200
= $75,960
Overhead cost per unit = $75,960 / 40,000 = $1.90 per unit
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