ACC200 term XXXXXXXXXXAssignment Due: week 10 (see moodle) Mark: 20% Word count: 2000 words approximately. In a report format. Beztec Limited produces two models of Printers: the Lexon, which Beztec...

ACC200 term XXXXXXXXXXAssignment
Due: week 10 (see moodle)
Mark: 20%
Word count: 2000 words approximately. In a report format.
Beztec Limited produces two models of Printers: the Lexon, which Beztec has produced since 2014 and sells for $990; and the Protox, a newer model introduced in 2016 that sells for $1254. Based on the following income statement for the year ended 31 December 2017, senior management at Beztec have decided to concentrate marketing resources on the Protox model and to begin to phase out the Lexon model because the Protox generates a much bigger operating profit per unit.
    Beztec Limited
Income statement for the financial year ended 31December 2017
    
    Lexon
    Protox
    Total
    Revenues
    $ XXXXXXXXXX
    $ XXXXXXXXXX
    $ XXXXXXXXXX
    Cost of goods sold
     XXXXXXXXXX
     XXXXXXXXXX
     XXXXXXXXXX
    Gross margin
     XXXXXXXXXX
     XXXXXXXXXX
     XXXXXXXXXX
    Selling and administrative expense
     XXXXXXXXXX
     XXXXXXXXXX
     XXXXXXXXXX
    Operating income
    $ XXXXXXXXXX
    $643 500
    $ XXXXXXXXXX
    Units produced and sold
    24 000
    6 000
    
    Operating income per unit sold
    $71.50
    $107.25
    
Details for cost of goods sold for Lexon and Protox are:
    
    Lexon
    Protox
    Costs
    Total
    Per unit
    Total
    Per unit
    Direct materials
    $ XXXXXXXXXX
    $228.80
    $ XXXXXXXXXX
    $642.40
    Direct production laboura
    475 200
    19.80
    277 200
    46.20
    Machine
     XXXXXXXXXX
    158.40
    475 200
    79.20
    Total direct
    $ XXXXXXXXXX
    $407.00
    $ XXXXXXXXXX
    $767.80
    Production overheadc
    $ XXXXXXXXXX
    $220.00
    $660 000
    $110.00
    Total cost of goods sold
    $ XXXXXXXXXX
    $627.00
    $ XXXXXXXXXX
    $877.80
a Lexon requires 1.5 hours per unit and Protox requires 3.5 hours per unit. The direct production labour rate is $13.20 per hour.
Machine costs include lease costs of the machine, repairs and maintenance. Lexon requires 8 machine-hours per unit and Protox requires 4 machine-hours per unit. The machine-hour rate is $19.80 per hour.
c Production overhead costs are allocated to products based on machine-hours at the rate of $27.50 per hour.
Beztec’s management accountant, Sue Smith, is advocating the use of activity-based costing and activity-based management and has gathered the following information about the company’s production overhead costs for the year ended 31December 2017.
    
    Activity-cost-driver quantities
    Activity-cost driver (driver quantity)
    Total activity costs
    Lexon
    Protox
    Total
    Soldering (number of solder points)
    $ XXXXXXXXXX
     XXXXXXXXXX
    433 125
     XXXXXXXXXX
    Shipments (number of shipments)
     XXXXXXXXXX
    18 225
    4 275
    22 500
    Quality control (number of inspections)
     XXXXXXXXXX
    63 225
    23 963
    87 188
    Purchase orders (number of orders)
     XXXXXXXXXX
    90 113
    123 727
    213 840
    Machine power (machine-hours)
    71 280
    198 000
    18 000
    216 000
    Machine set-ups (number of set-ups)
    928 125
    18 000
    15 750
    33 750
    Total production overhead
    $ XXXXXXXXXX
    
    
    
After completing her analysis, Smith shows the results to Steven Kay, the CEO of Beztec. Kay does not like what he sees. ‘If you show headquarters this analysis, they are going to ask us to phase out the Protox line, which we have just introduced. This whole costing stuff has been a major problem for us. First, Lexon was not profitable and now Protox.
‘Looking at the ABC analysis, I see problems. First, we do many more activities than the ones you have listed. If you had included all activities, maybe your conclusions would be different. We can’t afford to phase out either product, please alter the costs produced by the ABC system.’
Smith knows that her numbers are fairly accurate. As a quick check, she calculates the profitability of Lexon and Protox using more and different activity drivers. The set of activities and activity rates she had used results in numbers that closely approximate those based on more detailed analyses. She is confident that headquarters, knowing that Protox was introduced only recently, will not phase out Protox. She is also aware that a sizeable portion of Kay’s bonus is based on division revenues. Phasing out either product would adversely affect his bonus. Still, she feels some pressure from Kay to do something. She asks for your advice.
Required
1. Discuss the importance of accurate product costing. In your discussion you should highlight the problems associated with using traditional costing system which Beztec has been using.
2. Calculate the cost driver rates for the various activities identified in the activity-based costing (ABC) system.
3. Calculate the cost of each model under activity based costing.
4. Complete a profitability analysis by calculating the gross profit and gross profit percentage per unit for both models under ABC system.
5. Advise Smith on how she should respond to Kay’s suggestion that she alter the costs produced by the ABC system. You should discuss APES 110 Code of Ethics for Professional Accountants.
6. Using a predetermined overhead rate to allocate overhead cost will most probably result in ove
under allocation of overhead coats. Explain why this may happen and three ways to dispose the amount of ove
under applied overhead costs.