Solutions - Zeus Opticals
a.
Price
Variable cost
Unit contribution margin
Allocated overhead
Profit margin

Eyepieces
$53.00
30.00
23.00
25.50
$(2.50)

Binoculars
$ 78.00
45.00
33.00
32.30
$ 0.70

Camera Lens
$160.00
118.00
42.00
35.70
$ 6.30

In this computation, notice that Zeus’s overhead rate is $17 per labor hour. We first compute the total number of hours as [(16,000 eyepieces × 1.5 hours/unit) + (20,000 binoculars × 1.9 hours/unit) + (3,000 lens× 2.1 hours/unit)] = 68,300 hours. We then find the overhead rate by dividing the total overhead of $1,161,100 by the 68,300 total hours. In turn, the amount allocated to each eyepiece is 1.5 hours × $17/hour =
$25.50, and so forth.
b. We have:
Cost pool

Amount

Labor related
Order related
Inventory etc
Product development
Facility level cost

$ 614,700
$ 188,000
$ 156,250
$ 90,000
$ 112,150

Cost driver

Denominator Allocation volume rate
Labor hours
68,300
$ 9.00
Number of batches
40
$4,700.00
Number of transaction
1,250
$ 125.00
Number of product
3
$ 30,000.00 n/a n/a

c.
Eyepieces Binoculars Camera Lens
Price
$ 53.00
$78.00
$ 160.00
Variable costs
30.00
$45.00
118.00
Unit contribution margin
$ 23.00
$33.00
$ 42.00
Labor related
13.50
17.10
18.90
1
2
Order related
1.47
4.70
23.50
Inventory etc
0.31
1.31
41.67
Product development
1.88
1.50
10.00
Profit margin
$ 5.84
$8.39
$(52.07)
1

$1.47 = $4700 per batch / 3200 Eyepieces per batch
$0.31 = ($125 per transaction × 2 components × 20 transactions)/16,000 Eyepieces

2

On a total basis, we have:
Price
Variable costs
Contribution margin
Labor related
Order related
Inventory etc
Product development
Product profit margin
Common costs
Profit

Eyepieces Binoculars
$848,000 $1,560,000
480,000
900,000
$368,000
$660,000
216,000
342,000
23,500