Computing Profit Using ABC Cottrell Company manufactures three products. Gross margin computations for these three products for 2009 are given below.

Cottrell has reexamined the factors that cause its manufacturing overhead costs and has discovered that the annual amount of manufacturing overhead is more closely related to the number of product batches produced during the year than it is to direct labor costs. The number of batches of the three products for 2009 was as follows: Product A, 10 batches;
Product B, 60 batches; Product C, 30 batches.
1. Prepare gross margin calculations for Cottrell’s three products assuming that manufacturing overhead is allocated based on the number of batches.
2. Under the direct labor cost method of manufacturing overhead allocation, one of Cottrell’s products appears profitable but the ABC calculations reveal that it is not.
Which product is this?

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Sales Direct materials Direct labor Manufacturing overhead* Gross margin Product A $ 300,000 (50,000) (150,000) (225,000) $(125,000) Product B $ 500,000 (250,000) (50,000) Product C $ 600,000 (200,000) (100,000) (75,000) (150,000) $125,000 $ 150,000 *Manufacturing overhead is allocated to production based on the amount of direct labor cost.