Refer to your answers in E4-28A. In addition to the manufacturing overhead costs, the following data are budgeted for the company’s Standard and Deluxe models for next year:

Requirements:

1. Compute the gross profit per wheel if managers rely on the ABC unit cost data computed in E4-28A.
2. Compute the gross profit per wheel if the managers rely on the plantwide allocation cost data.
3. Which product line is more profitable for the company?
4. Why might the controller have expected ABC to pass the cost-benefit test? Were there any warning signs that the company’s old direct-labor-based allocation system was broken?

Data From E4-28A:-

Several years after reengineering its production process, Dettling Corporation hired a new controller, Alana Metzgar. She developed an ABC system very similar to the one used by Dettling’s chief rival. Part of the reason Metzgar developed the ABC system was because Dettling’s profits had been declining, even though the company had shifted its product mix toward the product that had appeared most profitable under the old system.
Before adopting the new ABC system, the company had used a plantwide overhead rate based on direct labor hours that was developed years ago.
For the upcoming year, Dettling’s budgeted ABC manufacturing overhead allocation rates are as follows:

The number of parts is now a feasible allocation base because Dettling recently installed a plantwide computer system. Dettling produces two wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows:

The company’s managers expect to produce 1,000 units of each model during the year.

Requirements:

1. Compute the total budgeted manufacturing overhead cost for the upcoming year.
2. Compute the manufacturing overhead cost per wheel of each model using ABC.
3. Compute the company’s traditional plantwide overhead rate. Use this rate to
determine the manufacturing overhead cost per wheel under the traditional system.

Transcribed Image Text:

Sales price per wheel........ Direct materials per wheel. Direct labor per wheel........ Standard Deluxe $460.00 $630.00 $ 33.50 $ 45.70 $ 48.00 $ 52.00