Refer to your answers in E4-36B. 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 ……………………………………………… $575.00 $735.00

Direct materials per wheel …………………………………………. $ 33.00 $ 46.75

Direct labor per wheel ………………………………………………. $ 45.90 $ 54.00

Requirements

1. Compute the gross profit per wheel if managers rely on the ABC unit cost data.

2. Compute the gross profit per unit if the managers rely on the plant 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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