4. Gross margin is one measure of profitability. Before adding the wall hammer, pitons were the only product the company manufactured. The financial results for selling 4,200 pitons per month appear below (Table 1) and show a gross margin of 4%. Now, assuming the rock hammers have been added, and employing the estimates and assumptions provided in the case, what will be the unit gross margins for EACH of the two product lines? (You need to review cost allocation concepts from previous sessions)

Volume		50,400
Revenue		$529,200
Materials	$73,080
Direct Labor	$345,000
Factory Overhead
Supplies	$5,544
Power	$29,808
Depreciation	$14,355
Occupancy	$33,000
Total Manufacturing costs		$500,787
Gross Margin		$28,413	5.4%

BAB278 / MAY 2015 Exhibit 2: Depreciation Schedule, Including Estimate for Injection Molding Machine Subtotal Machine type Cold roll and cut Oven & drop- forge Bore Deburr and polish Package Injection mold Total (making just pitons) Cost $29,000 $88,000 $15,000 $9,000 $2,550 $143,550 $35,000 $178,550 Life 10 10 10 10 10- 7 $ 2,900 $ 8,800 $ 1,500 $ 900 $ 255 $ 14,355 $ 5,000 $ 19,355 Annual depreciation Exhibit 3: Current and Estimated Cost and Revenue Data Current Results Average monthly piton demand Selling price per piton Annual worker labor cost (fully-loaded, including benefits) 4,200 units Annual machine and tool depreciation (existing machines) Annual occupancy cost (including building lease) Annual lighting/heating/utilities cost Direct material cost per piton Variable energy cost per piton Variable supplies cost per piton Annual administrative costs Estimated Information Increase in fixed utility costs due to new machine Material costs (per hammer) Utility costs per hammer Supply costs per hammer $10.50 $ 57,500 per worker $ 14,355 $ 33,000 $ 29,808 $ 1.45 $ 0.18 $ 0.11 $ 7,200 $864 $10.44 $0.46 $0.14 BAB278 / MAY 2015 Exhibit 2: Depreciation Schedule, Including Estimate for Injection Molding Machine Subtotal Machine type Cold roll and cut Oven & drop- forge Bore Deburr and polish Package Injection mold Total (making just pitons) Cost $29,000 $88,000 $15,000 $9,000 $2,550 $143,550 $35,000 $178,550 Life 10 10 10 10 10- 7 $ 2,900 $ 8,800 $ 1,500 $ 900 $ 255 $ 14,355 $ 5,000 $ 19,355 Annual depreciation Exhibit 3: Current and Estimated Cost and Revenue Data Current Results Average monthly piton demand Selling price per piton Annual worker labor cost (fully-loaded, including benefits) 4,200 units Annual machine and tool depreciation (existing machines) Annual occupancy cost (including building lease) Annual lighting/heating/utilities cost Direct material cost per piton Variable energy cost per piton Variable supplies cost per piton Annual administrative costs Estimated Information Increase in fixed utility costs due to new machine Material costs (per hammer) Utility costs per hammer Supply costs per hammer $10.50 $ 57,500 per worker $ 14,355 $ 33,000 $ 29,808 $ 1.45 $ 0.18 $ 0.11 $ 7,200 $864 $10.44 $0.46 $0.14