Cost management with an ABC system Hayne Corporation manufactures two different coffee makers, Professional for commercial use and Home for family use. Dwight Hayne, the president, recently received complaints from some members of the board of directors about the company's failure to reach the expected profit of $200,000 per month. Mr. Hayne is, therefore, under great pressure to improve the company's bottom line. Under his direction, Alicia Meek, the controller, prepared the following monthly cost data for Mr. Hayne.

The market price for coffee makers comparable to Professional is $65 and to Home is $22. The company's administrative expenses amount to $125,000.
Required
a. Compute the cost per unit for both products.
b. Determine the company's profit or loss.
c. Charlie Chen, the marketing manager, recommends that the company implement a focused marketing strategy. He argues that advertisements in trade journals would be more effective for the commercial market than on TV. In addition, the cost of journal ads would be only $21,000. He also proposes sending discount coupons to targeted households to reach a broad market base. The coupons program would cost $72,000. Compute the new cost of each product, assuming that Mr. Hayne replaces TV advertising with Mr. Chen's suggestions.
d. Determine the company's profit or loss using the information in Requirement c.

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Professional (P) $25 per unit Direct Cost Direct materials Direct labor Home (H) s9 per unit $16 per hour x 0.8 hour production time $16 per hour x 0.3 hour production time Cost Driver Estimated Cost Use of Cost Driver Category Product inspection Machine setups Product promotion Facility depreciation Total Number of units Number of setups Number of TV commercials Number of machine hours P: 15,000 units; H: 45,000 units P. 30 setups; H: 45 setups P: 10; H: 10 P: 7,160 hours; H: 4,640 hours S 60,00 15,000 200,000 295,000 $570,000