1. a. Comparing the Gross Margin percentages of the jobs under the Activity Based Costing system, which job is more attractive for Lock-Tite to sell? Could the company be overcharging their customers for this job? Explain using complete sentences and 30 to 50 words.

1. b. Do you think the company’s policy of using a factor times direct material costs to set selling prices is a good policy? What would change if they used “total costs” to establish selling prices? What other information might be helpful to make this decision. Make sure you explain your answer using full sentences and 30 to 50 words.

1. c. Should Lock-Tite Company switch to ABC method? Explain how it may or may not help manage their company. Use complete sentences and 30 to 50 words.

Answer A &B&C USING CHARTS

Lock-Tite Company

Jobs Report – Traditional OH allocation (Direct Labor Dollars)

Year Ending December 31

JV28	BY92	ZF14
Sales Revenue	132,800	99,600	92,960	Calculated in 7e)
Job Costs:
Direct Material	26,560	19,920	13,280	From 7a)
Direct Labor	7,842	5,882	5,882	From 7b)
Overhead	4,313	3,235	3,235	From 7c)
Total Job Costs	38,715	29,037	22,397
Gross Margin	70.85	70.85	75.91
Gross Margin %	53%	71%	82%

Lock-Tite Company
Job Report – ABC
JV28	BY92	ZF14
Sales Revenue	132,800	99,600	92,960
Job Costs:
Direct Material	26,560	19,920	13,280
Direct Labor	7,842	5,882	5,882
Overhead – from 8	36,330	29,420	37,761
Total Job Costs	70,732	55,222	56,923
Gross Margin	0.47	0.45	0.39
Gross Margin %	47%	45%	39%