Computing Profit Using ABC Halsey, Inc. manufactures two types of baby car seats: standard and deluxe. Information for the year 2009 has been given as follows:

Manufacturing overhead for the year totals $650,000. Halsey allocates manufacturing overhead by direct labor hour.
1. Prepare gross margin calculations for each product line using direct labor hours as an allocation base.
2. Management has determined that a more correct method of allocating manufacturing overhead is by the number of purchase orders. Prepare new gross margin calculations for management using purchase orders as the allocation base.
3. By how much do the profits of the two types of baby car seats differ between the direct labor hour allocation method and ABC allocation? Assuming that allocating manufacturing overhead by purchase orders is more correct, what can you conclude from this difference?

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Standard Deluxe Sales price $50 $80 Units produced and sold 23,400 9,750 Direct materials cost.. $195,000 $130,000 Direct labor cost per hour Direct labor hours $10 35,100 $10 42,900 Purchase orders 100 25