Problem #1: Activity Based Costing The XYZ Company produces two of types widgets: standard and deluxe. The current cost sytem applies OH on the basis of DL hours. Mangement is concerned about eroding profit margins on the standard widgets. Information about the production process is presented below. standard deluxe total quantity produced 8,650 990 $83.00 $225.00 selling price per widget DM cost per widget DL cost per widget $18.75 $42.60 $10.00 $13.00 DL cost per hour $19.00 $23.00 total OH (fixed cost) $683,000 (1) What is the gross profit per widget (per unit) using the current cost system? (4 points) standard deluxe total price $83.00 $225.00 DM $18.75 $42.60 DL $10.00 $13.00 OH gross profit gross margin (2) The president has asked you to do an ABC study to determine of the current accounting system understates the gross margin on standard widgets. You find the following information about the OH costs in an ABC context. Complete the template below showing the full manufacturing cost per widget under ABC. (6 points) cost category cost cost driver production scheduling $194,000 #production runs facility lease $288,000 # square feet maintenance $201,000 # machine hours total $683,000 cost driver quantity cost category standard deluxe production scheduling 40 110 facility lease 3,300 6,200 maintenance 2,850 1,965 total 6,190 8,275 standard deluxe total price $83.00 $225.00 DM $18.75 $42.60 DL $10.00 $13.00 production scheduling OH facility lease OH machine maintenance OH gross profit gross margin (3) What will be the overall gross margin (both product lines) if the number of production runs for the deluxe widgets is changed to 75? (2 points) gross margin Problem #1: Activity Based Costing The XYZ Company produces two of types widgets: standard and deluxe. The current cost sytem applies OH on the basis of DL hours. Mangement is concerned about eroding profit margins on the standard widgets. Information about the production process is presented below. standard deluxe total quantity produced 8,650 990 $83.00 $225.00 selling price per widget DM cost per widget DL cost per widget $18.75 $42.60 $10.00 $13.00 DL cost per hour $19.00 $23.00 total OH (fixed cost) $683,000 (1) What is the gross profit per widget (per unit) using the current cost system? (4 points) standard deluxe total price $83.00 $225.00 DM $18.75 $42.60 DL $10.00 $13.00 OH gross profit gross margin (2) The president has asked you to do an ABC study to determine of the current accounting system understates the gross margin on standard widgets. You find the following information about the OH costs in an ABC context. Complete the template below showing the full manufacturing cost per widget under ABC. (6 points) cost category cost cost driver production scheduling $194,000 #production runs facility lease $288,000 # square feet maintenance $201,000 # machine hours total $683,000 cost driver quantity cost category standard deluxe production scheduling 40 110 facility lease 3,300 6,200 maintenance 2,850 1,965 total 6,190 8,275 standard deluxe total price $83.00 $225.00 DM $18.75 $42.60 DL $10.00 $13.00 production scheduling OH facility lease OH machine maintenance OH gross profit gross margin (3) What will be the overall gross margin (both product lines) if the number of production runs for the deluxe widgets is changed to 75? (2 points) gross margin
