Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:
Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50. There is no direct labor. If Sleep Tight sells pillows for $21.00, they will earn a gross profit of $1.30 per pillow.

Question

Sleep Tight Company manufactures pillows using an activity-based costing system. The following information is provided for the month of June:
  Each pillow consists of 4 parts and the total direct materials cost per pillow is $3.50. There is no direct labor. If Sleep Tight sells pillows for $21.00, they will earn a gross profit of $1.30 per pillow.

Quizplus · Accepted Answer

The gross profit would be $17.50 ($21.00 - $3.50) which is not equal to $1.30 per pillow.

Sleep Tight Company Manufactures Pillows Using an Activity-Based Costing System