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Sleep-Tight Manufacturing produces two types of bed: King and Queen. The assignment basis for support costs has been direct labor pesos. For 2030, Sleep-Tight compiled the following data for the two products:

King Queen

Sales units 200,000 1,600,000

Sales price per unit P2,600.00 P1,900.00

Direct material and labor costs per unit P720.00 P520.00

Manufacturing support costs per unit P320.00 480.00

Last year, Sleep-Tight Manufacturing purchased an expensive robotics system to allow for more decorative bed products in the King product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information for 2030:

Activity Cost Driver Cost Total Deluxe Standard

Setups of setups P2,000,000 2,000 1,600 400

Machine-related of machine hours P176,000,000 2,400,000 1,200,000 1,200,000

Packing of shipments P20,000,000 1,000,000 200,000 800,000

Currently estimated King total cost per unit is P1040

Currently estimated Queen total cost per unit is P1000

Currently estimated Kings profit per unit is P1,560

Currently estimated Queens profit per unit is P900

Using the activity-based costing data presented above, manufacturing overhead cost driver rates:

Setup activity is P1,000/setup

Machine-related activity is P73.33/machine hour

Packing activity is P20/shipment

The revised manufacturing overhead cost per unit for King is P468 per unit and Queen is P65.25 per unit.

The revised total cost to manufacture one unit of each type of King is P1188.00 and Queen is P585.25.

Required:

Using the current system, estimated manufacturing overhead costs per unit are less for the King (P320 per unit) than the Queen (P480 per unit). What is a likely explanation for this?

Review the machine-related costs above. What is a likely explanation for machine-related costs being so high? What might explain why total machining hours for the King (1,200,000 hours) are the same as for the Queen (1,200,000 hours)?

Is the King as profitable as the original data estimated? Why or why not?

Revised profit per unit for the King is ________________?

Revised profit per unit for the Queen is ______________?

Currently estimated Kings profit per unit is ______________?

Currently estimated Queens profit per unit is _____________?

4. What considerations need to be examined when determining a sales mix strategy?

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