Chapter 4 Managerial Accounting

ATC 5-1 (PG. 246) Using ABC to improve product pricing) Answer the four questions posed in the case. Include in your answer the basic differences between volume based (traditional) overhead application procedures and the ABC method.

A. ) Determine the gross profit margin for each product produced based on the ABC data [(selling price - ABC cost per unit) x Units produced]

b.) Determine the gross profit margin for each product produced based on the traditional costing data [(selling price - traditional cost per unit) x units produced}

c,) Provide an explanation as to why the cost of OS-367 may have increased under the ABC system while the cost of GS-157 decreased.

d.) Suggest what action management might take with respect to the discovering resulting from the ABC versus traditional costing analysis. Assume that Drilling Innovations expects to produce a gross profit margin on each product of at least 30 percent of the selling price.