Continuing problem 6, CardioMed’s cost accountants have identified cost totals for the period’s production support activities and other overhead. The table below provides this information, along with activity cost drivers and allocation of their unit count to each model:

What would be the unit cost and gross profit margin per model if the company was using ABC principles for the allocation of its manufacturing overhead expenses? Under what conditions would you advice CardioMed’s management to adopt an ABC approach for product costing?

Problem 6 

CardioMed Inc. is a manufacturer of wearable heart monitoring products that automatically detect, record, and transmit abnormal heart rhythms for up to thirty days. In one accounting period the firm produced in its plant in San Jose, California, 220,000 units of model A and 140,000 units of model B. The selling prices of models A and B are respectively $160 and $190, while the direct costs for the period are shown in the table below:

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Cost driver unit count Cost category Material purchasing Machine setup, testing, and calibration Production supervision Indirect costs Cost driver Model A Model B $770,000 # purchase orders 64 96 $3,725,000 # setups 64 128 $1,180,000 Direct labor $7,260,000 $6,870,000 Quality assurance $1,807,000 # inspections 42 86 Plant administration $1,440,000 Utilities $2,595,000 Direct labor Machine-time $7,260,000 $6,870,000 600 360 Supplies $1,143,000 # units 220,000 140,000 Depreciation of equipment $1,800,000 Machine-time 600 360