Comma Ltd manufactures two types of Sprizzer Standard and Deluxe. Each product requires the incorporation of
Question:
Comma Ltd manufactures two types of Sprizzer – Standard and Deluxe. Each product requires the incorporation of a difficult-to-handle special part (one of them for a Standard and four for a Deluxe). Both of these products are made in batches (large batches for Standards and small ones for Deluxes). Each new batch requires that the production facilities are ‘set up’.
Details of the two products are:
In recent months, Comma Ltd has been trying to persuade customers who buy the Standard to purchase the Deluxe instead. An analysis of overhead costs for Comma Ltd has provided the following information.
Required:
(a) Calculate the profit per unit and the return on sales for Standard and Deluxe Sprizzers using both:
● the traditional direct-labour-hour-based absorption of overheads; and ● activity-based costing methods.
(b) Comment on the managerial implications for Comma Ltd of the results in
(a) above.
Step by Step Answer:
Accounting An Introduction
ISBN: 9780273733201
5th Edition
Authors: Eddie McLaney, Dr Peter Atrill, Eddie J. Mclan