Question

Perkins Company manufacturers a wide variety of products in its Dallas Division. The Dallas plant was created to be an efficient producerof standardized products made in long-production runs although both high and low volume products are now producted there . Annual volums range from severl thousand units for some products to fewer than 10 for others. In recent year, much of the Dallas plants usual business in high volume products ha been lost to competitiors who price aggressivley and who do not product a full product line. To better understand the costs of its products, the Dallas Division is considering changing its product costing system. The existing sstem accululates al over head in a signle cost pool and allocates it based on direct labor horus. Because of the very large number of products, the general manger has decided to focus initially on just two products: Product 321, which is representative of most of Dallas- high volume products and Product 333, a representative low volume product. The following information pertains to the most recent years operations of the Dalls plant; for brevity, details for products other than Product 321 and Product 333 are not shown, but totals for the entire divison are given in the las t column.

................................................................Total for Product 321.....Total Product 333........Total for Dallas

Direct material cost......................................$6,000.....................$150........................25,000

Direct labor cost.......................................30,000.....................600..........................100,000

Total direct cost..................................$36,000........................750............................125,000

Unit-lever overhead....................................................................................................140,000

Batch level overhead....................................................................................................240,000

Product-level overhead................................................................................................200,000

Plant-level overhead....................................................................................................220,000

Total overhead.............................................................................................................800,000

................................................................Total for Product 321.....Total Product 333........Total for Dallas

Units produced........................................2400...............................6............................6,000

Direct Materials pounds..........................36,000............................200...........................100,000

Material requisitions............................40.........................................5............................1,0000

Direct labor hours............................7,200...................................120............................20,000

machine hours........................3,800........................................30...................................10,000

setups...................................40...............................................4....................................1,600

Setup hours............................400..........................................36.....................................8,000

Design changes............................1..........................................4......................................40

Deisgn hours...................................320....................................200...................................2,000

Usual selling price...........................$150.....................................1500

Competitors price.............................$100....................................--------

Question:

Using the usual selling prices and the product costs reported by the ABC system, calculate the gross margin in dollars and as a percent of sales, to the nearest whole percent, on one unit of each product.

Answer 1

STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL							Product 321		Pproduct 333
			Activity	Total	Expected	Activity	Activity	OH	Activity	OH
ACTIVITY COST POOL			Measures	Overheads	Activity	Rate
Unit level Overheads			DLh	140000	20000	7.00	7200	50400	120	840
batch level overheads			Setps	240000	1600	150.00	40	6000	4	600
Product Level overheads			Design hours	200,000	2,000	100.00	320	32000	200	20000
Plant level overheads			DLH	220,000	20,000	11.00	7200	79200	120	1320
						Total Overheads		167600		22760
Total Cost and Unit Cost:
			Product 321	Product 333
Direct Material			6000	150
Direct labour			30000	600
Total Overheads			167600	22760
TOTAL COST			203600	23510
Divde: Units			2400	6
UNIT COST			84.8	3918.3
Gross Margin:
			Product 321	Product 333
Sales price per unit			150	1500
Less: Unit cost			84.8	3918.3
Gross margin per unit in $			65.2	-2418.3
Gross margin Ratio			43.47%	-161.22%
(Gross profit/ Selling price)