A computer manufacturer produces three types of devices: mobile phones, tablets, and computers. For...

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A computer manufacturer produces three types of devices: mobile phones, tablets, and computers. For the production of these three devices you have the following information:   Phone Tablet Computer  Material cost per unit £90 £140 £315  Direct labor hours per unit XXXXXXXXXXBudgeted units 1,500,000 900,000 1,200,000    Labor cost per hour £8      Overhead costs per annum  Utilities £20,000,000  Rent £15,000,000  Audit and legal £5,000,000  Administrative staff £40,000,000  Total £80,000,000  ABC analysis suggested that overhead costs are distributed to the three products according to the table below:  Overheads Phone Tablet Computer  Utilities £8,000,000 £5,000,000 £7,000,000  Rent £8,250,000 £2,250,000 £4,500,000  Audit and legal £2,900,000 £1,250,000 £850,000  Administrative staff £23,200,000 £6,000,000 £10,800,000  For each of the three products, the company aims at a different percentage for profit. Under the full absorption costing method and the targeted profit percentage, the prices of the three products should be:  Phone Tablet Computer  Full costing price £170.69 £233.87 £ XXXXXXXXXXCalculate the aimed profit percentages for the three products and under the full absorption costing method, with overhead costs absorbed on the basis of direct labour hours.  2. Use the profit percentages that you derived in (1) and calculate the prices of the three products under the ABC system.  3. Recommend a cost system and include any changes that you would suggest to the pricing strategy of the computer company (target length 300 words).
	
Document Preview: A computer manufacturer produces three types of devices: mobile phones, tablets, and computers. For the production of these three devices you have the following information: PhoneTabletComputerMaterial cost per unit £90£140£315Direct labor hours per unit 22.54Budgeted units1,500,000900,0001,200,000 Labor cost per hour£8Overhead costs per annumUtilities£20,000,000Rent£15,000,000Audit and legal£5,000,000Administrative staff£40,000,000Total£80,000,000ABC analysis suggested that overhead costs are distributed to the three products according to the table below:OverheadsPhoneTablet ComputerUtilities £8,000,000  £5,000,000  £7,000,000 Rent £8,250,000  £2,250,000  £4,500,000 Audit and legal £2,900,000  £1,250,000  £850,000 Administrative staff £23,200,000  £6,000,000  £10,800,000 For each of the three products, the company aims at a different percentage for profit. Under the full absorption costing method and the targeted profit percentage, the prices of the three products should be:PhoneTabletComputerFull costing price £170.69 £233.87 £435.67 Calculate the aimed profit percentages for the three products and under the full absorption costing method, with overhead costs absorbed on the basis of direct labour hours. Use the profit percentages that you derived in (1) and calculate the prices of the three products under the ABC system. Recommend a cost system and include any changes that you would suggest to the pricing strategy of the computer company (target length 300 words).

Robert · Accepted Answer

A computer manufacturer produces three types of devices:mobile phones, tablets, and computers. 
For the production of these three devices you have the following information: 
  Phone Tablet Computer 
Material cost per unit  £90 £140 £315 
Direct labor hours per unit  2 2.5 4 
Budgeted units 1,500,000 900,000 1,200,000
 
  
Labor cost per hour £8 
Overhead costs per annum 
Utilities £20,000,000 
Rent £15,000,000 
Audit and legal £5,000,000 
Administrative staff £40,000,000 
Total £80,000,000 
ABC analysis suggested that overhead costs are distributed to the three products according to the 
table below: 
Overheads Phone Tablet  Computer 
Utilities  £8,000,000   £5,000,000   £7,000,000  
Rent  £8,250,000   £2,250,000   £4,500,000  
Audit and legal  £2,900,000   £1,250,000   £850,000  
Administrative staff  £23,200,000   £6,000,000   £10,800,000  
For each of the three products, the company aims at a different percentage for profit. Under the 
full absorption costing method and the targeted profit percentage, the prices of the three products 
should be: 
 
Phone Tablet Computer 
Full costing price  £170.69  £233.87  £435.67  
1. Calculate the aimed profit percentages for the three products and under the full 
absorption costing method, with overhead costs absorbed on the basis of direct labour 
hours.  
2. Use the profit percentages that you derived in (1) and calculate the prices of the three 
products under the ABC system.  
3. Recommend a cost system and include any changes that you would suggest to the pricing 
strategy of the computer company (target length 300 words).
1. Calculate the aimed profit percentages for the three products and under the full 
absorption costing method,

A computer manufacturer produces three types of devices: mobile phones, tablets, and computers. For the production of these three devices you have the following information: Phone Tablet Computer...

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