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Mirabel Co. For many years Mirabel Company only manufactured and sold a regular model. However, the company saw an opportunity in the marketplace and
Mirabel Co. For many years Mirabel Company only manufactured and sold a regular model. However, the company saw an opportunity in the marketplace and decided to begin manufacturing and selling a customized model. Sales of the regular model have held steady at 10,000 units per year over the last five years whereas sales of the customized product have approximately doubled each year. Last year, sales of the customized model were 500 units. However, despite the fact total sales have been increasing, the company's overall gross margin has been shrinking. The President attributed this to the fact that the gross margin for the regular product has shrunk considerably from what it was five years ago. Upon viewing the latest financial reports, the president of Mirabel exclaimed: Thank god we introduced the customized product when we did. We'd be losing our shirt if we hadn't. We better start emphasizing the customized product more and de- emphasizing sales of the regular product. As a newly hired manager in the company, you pondered this situation and thought you should do an investigation based on an ABC analysis - something you learned in MGT 2400. You determine that total manufacturing overhead is a significant component of total product cost and has been growing over the years. The company currently allocates manufacturing overhead on the basis of machine hours. Finally, you believe that the overhead might be better allocated using three cost pools and have come up with the following information based on last year's situation:
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