BRIXTON INDUSTRIES ABC CASE Brixton Industries makes three products: Widgets, Gadgets, and Helios. The following budget information relates to Brixton for the next year:

WIDGETS GADGETS HELIOS Sales and production units 50,000 40,000 30,000 Selling price per unit $45 $95 $73 Direct labor and materials per unit $32 $84 $65 Machine hours per unit in machine department 2 5 4 Direct labor hours per unit in assembly department 7 3 2

Traditionally, overhead has been allocated to the two production departments using the following rates: Machining department: $1.20 per machine hour Assembly department: $0.825 per direct labor hour.

However, you have determined that the overhead can be reorganized into cost pools as shown here with the appropriate cost drivers:

COST POOL DOLLAR COST COST DRIVER QUANTITY

Machining Services 357,000 Machine hours 420,000 Assembly Services 318,000 Direct labor hours 530,000 Set-up Costs 26,000 Set-ups 520 Order Processing 156,000 Customer Orders 32,000 Purchasing 84,000 Supplier Orders 11,200

In addition to the machine cost per hour and the assembly cost per hour given above, you have also been provided with the following estimates for the next year: WIDGETS GADGETS HELIOS Number of set-ups 120 200 200 Customer Orders 8,000 8,000 16,000 Supplier Orders 3,000 4,000 4,200 REQUIRED:

YOU MUST SHOW ALL OF YOUR CALCULATIONS TO RECEIVE FULL CREDIT FOR YOUR WORK!

1) Prepare and present a GROSS PROFIT REPORT showing the profitability of each product using traditional allocation procedures.

2) Prepare and present a GROSS PROFIT REPORT showing the profitability of each product using ABC allocation procedures. 3) Explain the differences between the answers that you have provided in questions (1) and (2).

4) What suggestions would you make to management?