Volume-Based Costing Versus ABC: Gorden Company produces a variety of electronic products.One of its plants produces two laser printers, Speedy and Deluxe.At the beginning of 2019, the following data were prepared for this plant: $$\begin{array} { l r r }
\hline & \text { Deluxe } & \text { Speedy } \
\text { Quantity } & 50,000 & 400,000 \
\text { Selling price } & \$ 475.00 & \$ 300.00 \
\text { Unit prime cost } & 180.00 & 110.00 \
\text { Unit overhead cost } & 20.00 & 153.60 \
\hline
\end{array}$$ The unit overhead cost is calculated using the predetermined overhead application rate based on direct labor-hours.
Upon examining the data, the marketing manager was particularly impressed with the per-unit profitability of the Deluxe printer and suggested that more emphasis be placed on producing and selling this product.The plant supervisor objected to this strategy, arguing that the Deluxe model required a very delicate manufacturing process.The supervisor believed that the cost of the Deluxe printer was likely to be much higher than reported.
The controller suggests an activity-based costing system and provides the following budget data pertaining to the period: * Cost per unit of cost driver
Required:
1.Using the projected data based on the firm's current costing system, calculate gross profit per unit and gross profit percentage for each product.Round calculations to 2 decimal places.
2.Using the suggested multiple cost drivers' overhead rates, calculate the overhead cost per unit for each product and determine gross profit per unit and gross profit percentage for each product.
3.Based on your results, evaluate the suggestion of the marketing manager to emphasize the Deluxe model.
4.How does ABC contribute to Gorden's competitive advantage?

Question

Volume-Based Costing Versus ABC: Gorden Company produces a variety of electronic products.One of its plants produces two laser printers, Speedy and Deluxe.At the beginning of 2019, the following data were prepared for this plant: $$\begin{array} { l r r } 
\hline & \text { Deluxe } & \text { Speedy } \
\text { Quantity } & 50,000 & 400,000 \
\text { Selling price } & \$ 475.00 & \$ 300.00 \
\text { Unit prime cost } & 180.00 & 110.00 \
\text { Unit overhead cost } & 20.00 & 153.60 \
\hline
\end{array}$$ The unit overhead cost is calculated using the predetermined overhead application rate based on direct labor-hours.
Upon examining the data, the marketing manager was particularly impressed with the per-unit profitability of the Deluxe printer and suggested that more emphasis be placed on producing and selling this product.The plant supervisor objected to this strategy, arguing that the Deluxe model required a very delicate manufacturing process.The supervisor believed that the cost of the Deluxe printer was likely to be much higher than reported.
The controller suggests an activity-based costing system and provides the following budget data pertaining to the period:  * Cost per unit of cost driver
Required:
1.Using the projected data based on the firm's current costing system, calculate gross profit per unit and gross profit percentage for each product.Round calculations to 2 decimal places.
2.Using the suggested multiple cost drivers' overhead rates, calculate the overhead cost per unit for each product and determine gross profit per unit and gross profit percentage for each product.
3.Based on your results, evaluate the suggestion of the marketing manager to emphasize the Deluxe model.
4.How does ABC contribute to Gorden's competitive advantage?

Quizplus · Accepted Answer

The Answer of Volume-Based Costing Versus ABC: Gorden Company produces a variety of electronic products.One of its plants produces two laser printers, Speedy and Deluxe.At the beginning of 2019, the following data were prepared for this plant: $$\begin{array} { l r r } 
\hline & \text { Deluxe } & \text { Speedy } \
\text { Quantity } & 50,000 & 400,000 \
\text { Selling price } & \$ 475.00 & \$ 300.00 \
\text { Unit prime cost } & 180.00 & 110.00 \
\text { Unit overhead cost } & 20.00 & 153.60 \
\hline
\end{array}$$ The unit overhead cost is calculated using the predetermined overhead application rate based on direct labor-hours.
Upon examining the data, the marketing manager was particularly impressed with the per-unit profitability of the Deluxe printer and suggested that more emphasis be placed on producing and selling this product.The plant supervisor objected to this strategy, arguing that the Deluxe model required a very delicate manufacturing process.The supervisor believed that the cost of the Deluxe printer was likely to be much higher than reported.
The controller suggests an activity-based costing system and provides the following budget data pertaining to the period:  * Cost per unit of cost driver
Required:
1.Using the projected data based on the firm's current costing system, calculate gross profit per unit and gross profit percentage for each product.Round calculations to 2 decimal places.
2.Using the suggested multiple cost drivers' overhead rates, calculate the overhead cost per unit for each product and determine gross profit per unit and gross profit percentage for each product.
3.Based on your results, evaluate the suggestion of the marketing manager to emphasize the Deluxe model.
4.How does ABC contribute to Gorden's competitive advantage?

Volume-Based Costing Versus ABC: Gorden Company Produces a Variety of Electronic