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The Perkins Cove Yacht Company Case
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 2
0 horsepower diesel
auxiliary motor.. It sells for $1120,000..
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
It can completely recharge the battery in less than an hour.. The Kennebunkport
sells for $2200,000..
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 base
d 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 $8800,000..
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
Most of Perkins Cove Yacht’s sales come from the Goose Rocks and the Kennebunkport,, but
sales of the Ogunquit model hav
e been growing.. Below is the company’s sales,, production,, and
cost information for last year::
Total Unit Cost
Unit Gross Profit
Direct Labor Hours
Rate per Hour
Manufacturing overhead** is made up as follows::
Total Manufacturing Overhead Cost
*TThese manufacturing overhead costs are fixed in nature:: they do not vary with the volume of
The company allocates overhead costs using the traditional method.. Its activity base is
unit volume.. The predetermined
overhead rate,, based on 170 total yachts,, is $227,000 per yacht
($$44,590,000 ÷ 170 yachts))..
Richard Perkins,, president of Perkins Cove yacht,, is concerned that
the traditional cost
allocation system the company is using may not be generating accurate
tion and that the selling price of the custom Ogunquit may not be covering its true cost..
allocation system Perkins Cove has been using allocates over 88%% of
overhead costs to the Goose Rocks and the Kennebunk because 88%% of
models.. How much overhead was allocated
, in total,,
of the three models last year?? Discuss why this might not be an accurate way to assign
overhead costs to products..
Perkins Cove’s production manager proposes allocating ove
rhead by direct labor hours
instead since the different models require different amounts of labor.. How much
overhead would be allocated to each yacht (pper unit
and in total)) under this method??
Show all supporting calculations..
How would the use of more tha
n one cost pool improve Perkins Cove Yacht’s cost
Perkins Cove Yacht’s controller developed the following data for use in 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
Calculate the cost of one custom Ogunquit yacht using activity
Why are the costs different between the trad
itional method and the activity
At the current selling price,, is the company covering its true cost of production of the
Ogunquit?? Briefly discuss..
hat should be the price that Perkins Cove Yacht Company charges for the Ogunquit??
hat the Ogunquit should have the same profit margin as the Kennebunkport..
Show all calculations..
What should Perkins Cove Yacht Co.. do if the quantity of the Ogunquit yachts sold at the
new price falls to 10 per year??
What should Perkins Cove Yacht Co.. do about the situation if the price of the Ogunquit
cannot exceed $8800,000??
At a selling price of $8800,000 each,, what is the breakeven unit volume for the Ogunquit??
What are the lessons learned from this case??