5-41 each of the t in strategic planning 4 Compure the two approxches and discus

Question

5-41

each of the t in strategic planning 4 Compure the two approxches and discuss the strategic and competitive issues of usin ts. The operaing methods os1sase s41 Volume-Based Costing versus ABC Eastem Chemical Company produces three produ results of the current year are: Actual Price $286.00 255.60 310.00 Difference Sales Quantity 1,000 5,000 500 Product $285.50 297.60 202.50 1.00 (42.00 $107.50 The firm sets the target price of each product at 150% of the product's total manufacturing cost Recognizing that the firm was able to sell Product C at a much higher price than the target price of the ACCTG 3701

Explanation / Answer

1. Total labor cost = ($20 x 1000) + ($12 x 5000) + ($10 x 500) = $85000

Allocation rate of manufacturing overhead = $510000/ $85000 = $6 per dollar of direct labor cost.

Manufacturing cost per unit

2.

Profit under current costing system

Based on the current cost data, product B is the least profitable product with a gross margin per unit of $57.20 (22.38%) and product C is the most profitable product with a gross margin per unit of $175.00 (56.45%).

Profit under ABC costing system

Comparison of reported product costs, new target price, actual selling price, and gross margin (loss):

4.

As per the activity-based costing system, the manufacturing cost of Product C is $373.10 per unit and, at the current selling price, the firm is making a $63.10 loss for each unit it manufactures and sells.

Product A Product B Product C Direct materials $50.00 $114.40 $65.00 Direct labor 20.00 12.00 10.00 Manufacturing overhead 120.00 72.00 60.00 Manufacturing cost per unit $190.00 $198.40 $135.00

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