Managers often make decisions about keeping or dropping a product after evaluating the profitability of each product in the product line. Bimini Products, Inc., recently completed an activity-based costing study. Management wishes to compare the results with the cost data produced by their traditional cost system. Product data are as follows:

Product A is produced in high volume using a stable process that does not require excessive support activities. Product B demands high levels of support activities and is produced in low volume. Product \(\mathrm{C}\) is produced in moderate volume.

a. For each product compute:
1. Profit margin, traditional 2. Profit margin, \(A B C\)
3. Percentage change in profit margin as follows: (profit margin \(\mathrm{ABC}-\) profit margin \(\div\) profit margin traditional)

b. What kinds of product line decisions might your calculations support?

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Selling Product Price Cost Traditional Cost ABC A $100 $ 80 $ 65 B 150 120 140 C 130 80 90