Refer to your answers in E4-25A. In addition to the manufacturing overhead costs, the following data are budgeted for the company’s Standard and Deluxe models for next year:

_____________________________________Standard______ Deluxe

Sales price per wheel………………………………… $460.00…………….$630.00

Direct materials per wheel ………………………… $ 33.50………………$ 48.00

Direct labor per wheel ……………………………… $ 45.70 $………………..52.00

Requirements

1. Compute the gross profit per wheel if managers rely on the ABC unit cost data computed in E4-25A.

2. Compute the gross profit per wheel if the managers rely on the plan wide allocation cost data.

3. Which product line is more profitable for the company?

4. Why might the controller have expected ABC to pass the cost-benefit test? Were there any warning signs that the company’s old direct-labor-based allocation system was broken?



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