Question
Cesar Ablang is a product manager for a Malaysian firm. His product is made in batches of 2,500 units each. Under a traditional, volume-based allocation
Cesar Ablang is a product manager for a Malaysian firm. His product is made in batches of 2,500 units each. Under a traditional, volume-based allocation system, his product cost was $14.50 per unit, including $8 in variable costs. The remainder is overhead, allocated based on the number of units. Cesar currently makes 15,000 units of product A.
Cesars firm recently implemented an ABC system. Under this system, the overhead allocated based on the number of units dropped to $3.50 per unit. In addition, each batch is allocated $7,000 in overhead and each variety of the product is allocated $14,000 for product-level costs.
For the coming year, suppose Cesar's firm only plans to make 7,000 units of product A. The maximum possible batch size will remain at 2,500 units.
Required:
For the coming year, what is the difference in the cost per unit for product A reported under the ABC and the traditional systems? (Difference = Cost per unit under ABC system Cost per unit under the traditional system).
Round your answer to the nearest cents.
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