8. Several years after reengineering its production process, Enke Corp. hired a new controller, Natalie Babin. She developed an ABC system very similar to the one used by Enke's chief rival, Northstar. Part of the reason Babin developed the ABC system was that Enke'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, Enke had used a plantwide overhead rate based on direct labour hours that was developed years ago. 1(Click the icon to view the overhead costs and budgeted data.) Requirements Requirement 1. Compute the gross profit per wheel if managers rely on the ABC unit cost data. Begin by computing the total costs. Enke Total cost per unit using ABC data (1) ||(2) ||(3) Total manufacturing cost Now compute the gross profit. |(4) |(5) Standard Enke Deluxe Gross profit per unit using ABC data Standard Deluxe Gross profit Requirement 2. Compute the gross profit per wheel if the managers rely on the plantwide allocation cost data. Begin by computing the total manufacturing costs. ||(6) |(7) ||(8) Enke Total cost per unit using plantwide overhead rate Standard Deluxe Total manufacturing cost Now compute the gross profit per wheel if the managers rely on the plantwide allocation cost data. Enke Gross profit per unit using plantwide overhead rate Standard Deluxe Now compute the gross profit per wheel if the managers rely on the plantwide allocation cost data. Enke Gross profit per unit using plantwide overhead rate Standard Deluxe (9) (10) Gross profit Requirement 3. Which product line is more profitable for Enke? The standard model is (11). (14). the deluxe model. Activity-based costing data generally are (12). cost data generated by a plantwide overhead allocation rate. ABC systems have (13). cost categories (activities), each with its own allocation base. ABC cost assignments represent the cost of resources consumed to manufacture (and support) products. Requirement 4. Why might controller Natalie Babin have expected ABC to pass the cost-benefit test? Were there any warning signs that Enke's old direct-labour-based allocation system was broken? The ABC system is likely to pass the cost-benefit test because Enke manufactures (15). The old cost system appears "broken" because profits have been declining even though the company (16) 1: Data Table Manufacturing Overhead Costs per Unit Standard Deluxe ABC costs. $ 165.50 $ 296.00 Plantwide overhead rate. $ 184.60 $ 276.90 The following data are budgeted for the company's Standard and Deluxe models for next year: Sale price per wheel Direct materials per wheel Direct labour per wheel Standard Deluxe $ 300.00 $ 440.00 30.00 46.00 45.00 50.00 Print