The 4 questions to this problem are located at the bottom Somethings wrong! Generator X Company produces two generators. The Excel has been manufactured for more than 20 years and it sells for $900. The Power is a new model developed and marketed approximately two years ago. It sells for $1,140. Based on the information in the companys income statement for 20x1, upper management wants to downscale and spend available marketing dollars on the Power while beginning to phase out the production of the Excel. Generator X Company Income Statement For the year ended December 31, 20x1 Power Excel Total Sales $ 4,560,000 $19,800,000 $24,360,000 Cost of goods sold 3,192,000 12,540,000 15,732,000 Gross Profit $ 1,368,000 $ 7,260,000 $ 8,628,000 Selling and administrative expenses 978,000 5,830,000 6,808,000 Net Income $ 390,000 $ 1,430,000 $ 1,820,000 Units Produced and sold 4,000 22,000 Net Income per unit sold $97.50 $65.00 The standard unit costs of the Power and Excel generators are as follows: Power Excel Direct Materials $ 584 $ 208 Direct Labor Power(3.5 hr. X $12) 42 Excel(1.5 hr. X $12) 18 Machine usage Power(4 hr. X $18) 72 Excel(8 hr. X $ 18) 144 Manufacturing overhead* 100 200 Total Standard cost $ 798 $ 570 *Manufacturing overhead was applied on the basis of machine hours at a predetermined rate of $ 25 per hour. Note: We have learned that direct costs include direct materials and direct labor. For our purposes in this problem, you should also assume that Machine usage is a direct cost. Wait a minute!...before we do anything rash: Generator Xs controller (Western New England MSA graduate) wants to try one more thing. She instructs her accountants to gather relative information so that her department may try allocating manufacturing overhead using activity-based costing and activity-based management. The following info was gathered: Number of Events Activity Center Cost Driver Traceable Cost Power Excel Total Soldering # of solder joints $ 942,000 385,000 1,185,000 1,570,000 Shipments # of shipments 860,000 3,800 16,200 20,000 Quality control # of inspections 1,240,000 21,300 56,200 77,500 Purchase Orders # of orders 950,400 109,980 80,100 190,080 Machine Power machine hours 57,600 16,000 176,000 192,000 machine setups # of setups 750,000 14,000 16,000 30,000 Total traceable costs $4,800,000

1) What is the problem to be solved?

2) Identify the relevant information needed to solve this problem.

3) What are the alternative methods commonly utilized to allocate manufacturing overhead costs to products? How are they different? Which method might be better in this situation?

4) Recalculate the cost of these products. Recalculate the the profit for each of these products. Calculations should be presented in the Income Statement format initially shown. Show calculations in total as well as on a per unit basis. Should Generator X Company stop production of the Excel Generator. Justify your decision.