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Mathias and New day spa

Price: $3.50


E21-17 Mathias Company manufactures a number of specialized machine parts. Part Bunkka-22
uses $35 of direct materials and $15 of direct labor per unit.
Mathias’ estimated manufacturing overhead is as follows:

Materials handling   100,000
Machining   200,000
Factory supervision   150,000
Total   450,000

Overhead is applied based on direct labor costs, which were estimated at $200,000.

Mathias is considering adopting activity-based costing. The cost drivers are estimated at:

Materials handling  Weight of materials  50,000 pounds
 Machining  Machine hours  20,000 hours 
Factory supervision  Direct labor hours  12,000 hours 

Instructions
(a) Compute the cost of 1,000 units of Bunkka-22 using the current traditional costing system.
(b) Compute the cost of 1,000 units of Bunkka-22 using the proposed activity-based costing
system. Assume the 1,000 units use 2,500 pounds of materials, 500 machine hours, and 1,000
direct labor hours.

E22-9 In the month of March, New Day Spa services 570 clients at an average price of $120.
During the month, fixed costs were $21,000 and variable costs were 65% of sales.

Instructions
(a) Determine the contribution margin in dollars, per unit, and as a ratio.

(b) Using the contribution margin technique, compute the break-even point in dollars and in units.

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