Perez Cameras Inc manufactures two models of cameras Model Z

Perez Cameras, Inc. manufactures two models of cameras. Model ZM has a zoom lens; Model DS has a fixed lens. Perez uses an activity-based costing system. The following are the relevant cost data for the previous month:

   

   

Perez’s facility has the capacity to operate 3,600 machine hours per month.

   
Required

1A) Compute the cost per unit for each product.

1B) The current market price for products comparable to Model ZM is $121 and for DS is $85. If Perez sold all of its products at the market prices, what was its profit or loss for the previous month?

1C) A market expert believes that Perez can sell as many cameras as it can produce by pricing Model ZM at $116 and Model DS at $40. Perez would like to use those estimates as its target prices and have a profit margin of 30 percent of target prices. What is the target cost for each product?

Direct Cost per Unit	Model ZM	Model DS
Direct materials	$	20.0		$	9.0
Direct labor		28.0			11.0

Solution

1A) ZM DS Direct materials 20 9 Direct labor 28 11 Overhead (Note:1) 63 25 Cost per unit 111 45 Note:1-Overhead cost per unit Overhead allocation inder ABC=Usage of cost driver*Cost per cost driver Cost per cost driver=Total estimated cost/Total usage of cost driver Category Estimated Cost Total usage of cost driver Cost per cost driver Cost allocated to ZM DS Unit level 24,990 11900 2.1 (2400*2.1) 5040 (9500*2.1) 19950 (2400+9500) Batch level 48,000 48 1000 (1000*24) 24000 (1000*24) 24000 (24+24) Product level 88,750 25 3550 (3550*13) 46150 (3550*12) 42600 (13+12) Facility level 2,28,000 1200 190 (400*190) 76000 (800*190) 152000 (400+800) Total overhead cost 151190 238550 Units produced 2400 9500 Overhead cost per unit 63 25 1B) Profit/Loss: ZM DS Market price 121 85 Less: Cost per unit 111 45 Profit/loss 10 40 1C) Target cost: ZM DS Target price 116 40 Less: profit margin @ 30% 34.8 12 Target cost 81.2 28