Gigabyte Incorporated manufactures three products for the computer industry: Gismos (product G): anpual sales, 8,000 units Thingamajigs (product T): annual sales, 15,000 units Whatchamacallits (product W): annual sales, 4,000 units The company uses a traditionat, volume-based product-costing system with manufacturing overhead applied on the basis of direct-labor dollars. The product costs have been computed as follows Direct-labor budget (based on budgeted annual sales): Predetermined overhead rate = Budgeted overhead - Budgeted direct lobor =875% Gigabyte's pricing method has been to set a target price equal to 150 petcent of f tt product cost. However, only the thingamaigs have been-selling at their target price. The target and actual current prices for all three products are the following Gigabyte has been forced to lower the price of Gismos in order to get orders. In contrast, Gigabyte has raised the price of Whatchamacallits several times, but there has been no apparent loss of sales. Gigabyte Incorporated has been under increasing pressure to reduce the price even further on Gismos. In contrast, Gigabyte's competitors do not seem to be interested in the market for Whatchamacalits, Gigabyte apparently has this market to itself. Required: 1. Is product G the company's least profitable product? 2 is product W a profitable product for Gigabyte incorporated? 4. Gigabyte's controller, Nan o Second, recently attended a conference at which activity-based costing systems were discussed. She became convinced that such a system would help Gigabyte's management to understand its product costs better. She got top management's approval to design an activity-based costing system, and an ABC project team was formed. In stage one of the ABC project, each of the overhead items listed in the overhead budget was placed into its own activity cost pool. Then a cost driver was identified for each activity cost pool. Finally, the ABC project team compled data showing the percentage of each cost driver that was consumed by each of Gigabyte's product lines. These data are summarized as follows: Show how the controller determined the percentages given above for raw-material costs: 5. Develop product costs for the three products on the basis of an activity-based costing system. 6. Based on yout answers in requirement 5 , calculate a target price for each product, using Gigabyte's pricing formula. Complete this question by entering your answers in the tabs below. Show how the controller determined the percentages given in requirement 4 for raw-material Note: Round Percentage of Total Raw-Material Cost to the nearest whole percentage (i.e .05= Develop product costs for the three products on the basis of an activity-based costing system. Note: Round intermediate and final answers to 2 decimal places. Based on your answers in requirement 5, calculate a target price for each product, using Gigabyte's pricing forr Note: Round your intermediate calculations and final answers to 2 decimal places
