E4-41B. Continuation of E4-40B Determine product profitability (Learning Objectives 2 & 3) Refer to your answers in E4-40B. In addition to the manufacturing overhead costs, the following data are budgeted for the company's Standard and Deluxe models for next year: Sales price per wheel. Direct materials per wheel Direct labor per wheel. Standard Deluxe $575.00 $735.00 $ 33.00 $ 46.75 $ 45.90 $ 54.00 Requirements 1. Compute the gross profit per wheel if managers rely on the ABC unit cost data. 2. Compute the gross profit per unit if the managers rely on the plantwide allocation cost data. 3. Which product line is more profitable for the company? 4. Why might the controller have expected ABC to pass the cost- benefit test? Were there any warning signs that the company's old direct-labor-based allocation system was broken? E4-40B. Use ABC to allocate manufacturing overhead (Learning Objective 2) Several years after reengineering its production process, King Corporation hired a new controller, Christine Erickson. She developed an ABC system very similar to the one used by King's chief rival. Part of the reason Erickson developed the ABC system was because King'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, the company had used a plantwide overhead rate, based on direct labor hours developed years ago. For the upcoming year, King's budgeted ABC manufacturing overhead allocation rates are as follows: Allocation Base Activity Cost Allocation Rate $ 4.00 per part $375.00 per setup Activity Materials handling Number of parts Machine setup Insertion of parts Finishing Number of setups Number of parts $28.00 per part Finishing direct labor hours $ 54.00 per hour The number of parts is now a feasible allocation base because King recently purchased bar-coding technology. King produces two wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows: 4 Standard Deluxe Parts per wheel 8.0 10.0 Setups per 1,000 wheels. 20.0 20.0 Finishing direct labor hours per wheel. 2.0 3.5 Total direct labor hours per wheel 2.6 3.4 The company's managers expect to produce 1,000 units of each model during the year. Requirements 1. Compute the total budgeted manufacturing overhead cost for the upcoming year. 2. Compute the manufacturing overhead cost per wheel of each model using ABC. 3. Compute the company's traditional plantwide overhead rate. Use this rate to determine the manufacturing overhead cost per wheel under the traditional system.