Cilia Corp.specializes in the production of finials which is mostly sold within the territory.The selling price for each finial is $15.Using the traditional allocation method to allocate manufacturing overhead,the full-product cost is determined to be $10.The company recently introduced activity-based costing method to allocate its overhead.The refinement of costs shows that the full-product cost is less by $2.50 from the traditional estimate.
Requirement:
1.Calculate and analyze the change in net profit percentage as a result of introduction of activity-based costing.
2.The desired net profit margin of the company is 60%.If the production costs cannot be reduced,by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing.)

Question

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The Answer of Cilia Corp.specializes in the production of finials which is mostly sold within the territory.The selling price for each finial is $15.Using the traditional allocation method to allocate manufacturing overhead,the full-product cost is determined to be $10.The company recently introduced activity-based costing method to allocate its overhead.The refinement of costs shows that the full-product cost is less by $2.50 from the traditional estimate.
Requirement:
1.Calculate and analyze the change in net profit percentage as a result of introduction of activity-based costing.
2.The desired net profit margin of the company is 60%.If the production costs cannot be reduced,by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing.)