Ultratech, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the companys sales. The first of these boards, a television circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and price-sensitive. Ultratech plans to sell 78,000 of the TV boards in 20x4 at a price of $440 per unit. The second high-volume product, a personal computer circuit board, is a recent addition to Ultratechs product line. Because the PC board incorporates the latest technology, it can be sold at a premium price. The 20x4 plans include the sale of 53,000 PC boards at $795 per unit.

Ultratechs management group is meeting to discuss how to spend the sales and promotion dollars for 20x4. The sales manager believes that the market share for the TV board could be expanded by concentrating Ultratechs promotional efforts in this area. In response to this suggestion, the production manager said, Why dont you go after a bigger market for the PC board? The cost sheets that I get show that the contribution from the PC board is more than double the contribution from the TV board. I know we get a premium price for the PC board. Selling it should help overall profitability.

The cost-accounting system shows that the following costs apply to the PC and TV boards.

	PC Board			TV Board
Direct material	$	242		$	152
Direct labor		3.0	hr.		1.0	hr.
Machine time		1.0	hr.		1.0	hr.

Variable manufacturing overhead is applied on the basis of direct-labor hours. For 20x4, variable overhead is budgeted at $27,150,200, and direct-labor hours are estimated at 260,700. The hourly rates for machine time and direct labor are $24 and $32, respectively. The company applies a material-handling charge at 10 percent of material cost. This material-handling charge is not included in variable manufacturing overhead. Total 20x4 expenditures for direct material are budgeted at $24,682,000.

Andrew Fulton, Ultratechs controller, believes that before the management group proceeds with the discussion about allocating sales and promotional dollars to individual products, it might be worthwhile to look at these products on the basis of the activities involved in their production. Fulton has prepared the following schedule to help the management group understand this concept.

Using this information, Fulton explained, we can calculate an activity-based cost for each TV board and each PC board and then compare it to the standard cost we have been using. The only cost that remains the same for both cost methods is the cost of direct material. The cost drivers will replace the direct labor, machine time, and overhead costs in the old standard cost figures.

Budgeted Cost				Cost Driver	Budgeted Annual Activity for Cost Driver
Procurement	$	930,000		Number of parts		8,068,500 parts
Production scheduling		505,000		Number of boards		144,100 boards
Packaging and shipping		1,010,000		Number of boards		144,100 boards
Total	$	2,445,000
Machine setup	$	944,000		Number of setups		490,600 setups
Hazardous waste disposal		122,000		Pounds of waste		45,100 pounds
Quality control		1,198,000		Number of inspections		346,500 inspections
General supplies		171,000		Number of boards		144,100 boards
Total	$	2,435,000
Machine insertion	$	3,050,000		Number of parts		5,443,000 parts
Manual insertion		9,300,000		Number of parts		2,150,000 parts
Wave-soldering		329,000		Number of boards		144,100 boards
Total	$	12,679,000

Required per unit	PC Board			TV Board
Parts:		81			39
Machine insertions		49			38
Manual insertions		32			1
Machine setups		4			3
Hazardous waste disposal		.70	lb.		.05	lb.
Inspections		3			2

Required: PC Board TV Board Total contribution margin $18,197,020