1. 10 points Product AlProduct Bl Total 360 $6,000 $36,000 $42,000 200 560 Variable costs: direct materials $1,200 $2,400 $3,600 direct labor $2,400 $6,000 SB8,400 Contribution margin $2,400 $27,600 30,000 Fixed costs $25,200 Profit $4,800 a) Allocate the fixed costs between products A and B. Use direct labor dollars as the cost driver. allocation rate- $ allocated costs for A=S allocated costs for B-s per DLS b) Compute the profit margins for products A and B: profit margin for A$ profit margin for B-$ Enter negative numbers with a minus sign, i.e., a loss of S 1,000 should be entered as-1000, not as (1000) or ($1000). c) Should you drop product A or product B in the short term? Why? O Keep both products both have positive contribution margin O Drop product A - it has negative profit margin O Drop product A-- it has negative contribution margin O Drop product A it has smaller contribution margin than product B Should you drop product A or product B in the long term? Why? O Keep both products both have positive contribution margin O Drop product A- it has negative profit margin O Drop product A- it has negative contribution margin O Drop product A -- it has smaller contribution margin than product B d) If you drop product A in the short term, fixed costs will: O remain the same O decrease by $7,200 profit will: Odecrease by $2,400 Oincrease by $4,800 If you drop product A in the long term, ixed costs ill: Oremain the same Odecrease by $7,200 profit wll: Odecrease by $2,400 Oincrease by $4,800o e) Allocate the fixed costs between products A and B, using the number of units as the cost driver allocation rate allocated costs for A-s allocated costs for B-s per urnit These allocated amounts are very different from what you got in part (a). In general, should we use the allocated costs from part (a) or from part (e)? Why? O use the allocated costs from ()--direct labor is always a better cost driver than the number of units O use the allocated costs from (e)thenumber of units is always a better cost driver than direct labor O it depends--direct labor can be a better cost driver in some situatins, and the number of units or some other activity measure) can be a better cost driver in other situations f) Suppose that a firm uses a labor-intensive production process. The most reasonable cost driver for manufacturing overhead costs is: O number of units O machine hours O direct labor (measured in hours or dollars) Suppose that a firm uses a machine-intensive production process. The most reasonable cost driver for manufacturing overhead costs is: O number of units O machine hours O direct labor (measured in hours or dollars)