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Perkins Cove Yacht Company produces three models of yachts. All are 44 feet long. One is a standard Fiberglass model
with nylon sails and a fixed keel made of lead and fiberglass named the Goose Rocks. It comes with a standard depth
finder, compass and 20 horsepower diesel auxiliary motor. It sells for $120,000.
The Kennebunkport model has upgrades with radar, GPS nautical charts, enhanced batteries, and Teflon coated carbon
fiber sails. The engine produces 100 horsepower and can run a cabin heater. It can completely recharge the battery in
less than an hour. The Kennebunkport sells for $200,000.
The Ogunquit model is a custom-made with a deck made from teak and a cabin constructed from special woods. The sails
are made from the traditional flax based canvass. The hull is from specially cut oak from local forests. It has the look of a
vessel constructed in 1850 by a quality Maine shipyard with 2016 comforts and safety. The Ogunquit sells for $800,000.
Workers who build the Ogunquit are specialty craftsmen. They earn twice the hourly rate of those working on the two
standard models. Note: Labor rate is fully loaded for benefits.
Most of Perkins Cove Yachts sales come from the Goose Rocks and the Kennebunkport, but sales of the Ogunquit model
have been growing. Below is the company's sales, production, and cost information for last year:
B. The use of more than one cost pool improves Perkins Cove Yacht's cost allocation considering each pool is associated
with a driver that drives the associated cost per item. Knowing all the cost pools will give/lead to an accurate account
of overhead cost per yacht.
C Perkins Cove Yacht's controller developed the following data for use in activity-based costing:
Manufacturi
Cost Goose
ng Amount Kennebunkport Ogunquit
Overhead Driver Rocks
Square
Depreciation $2,200,000 20,000 30,000 30,000
Feet
Direct
Maintenance $700,000 Labor 50,000 100,000 95,000
Hours
# of
Purchasing $180,000 Purchase 1,500 1,500 6,000
Orders
# of
Inspection $350,000 400 800 2,000
Inspections
Indirect Units
$290,000 50 100 20
Materials Manufactured
Supervision $800,000 # of Inspections 400 800 2
Units
Supplies $70,000 50 100 20
Manufactured
Total $4,590,000
D. Use activity-based costing to allocate the costs of overhead per unit and in total to each yacht. Show all supporting calculations.
It is appropriate to use an excel document to do your computations in Excel.
Price $800,000.00
Direct Materials
Direct Labor $250,000.00
Manufacturing Overhead $440,000.00
Total Unit Cost $98,876.58
$788,876.58
F. Why are the costs different between the traditional method and the activity-based method?
The costs are different as tradtional costing assigned the above numbers to an average over head rate, where as activity based
costing broke down all activities associated with production and assigned them to cost drivers to reflect an accurate cost per item in
regards to overhead.
G. At the current selling price, is the company covering its true cost of production of the Ogunquit? Briefly discuss.
Based on the current selling price, the company is covering the true cost of production for the Qgunquit. The per unit cost of one
yacht is $788,876.58 where they are currently selling for $800,000. Based on the selling price of $800,000 the overhead for 20 units
is currently $1,997,531.51, which reflects within the current cost of overhead in total chart in question D.
H. What should be the price that Perkins Cove Yacht Company charges for the Ogunquit? Assume that the Ogunquit should have the
same profit margin as the Kennebunkport. Show all calculations.
Profit Margin for Kennebunkport:
$40,000.00
20% $948,876.58
To get the Ogunquit profit margin to 20%, the price needs to be $948,876.58
I. What should Perkins Cove Yacht Co. do if the quantity of the Ogunquit yachts sold at the new price falls to 10 per year?
J. What should Perkins Cove Yacht Co. do about the situation if the price of the Ogunquit cannot exceed $800,000?
K. At a selling price of $800,000 each, what is the breakeven unit volume for the Ogunquit?
Price per unit 800,000 Breakeven (total fixed cost/unit contribution margin
Variable cost 1
Direct materials 250,000
Direct Labor 440,000
690,000 variable cost per unit
$ 110,000.00 contribution margin