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Question 2 : Almost Svmmetric Corporation The Almost Symmetric Corporation ( ASC ) has two almost identical products: Kravis and Geffen. The plans for 2
Question : Almost Svmmetric Corporation
The Almost Symmetric Corporation ASC has two almost identical products: Kravis and
Geffen. The plans for are to produce and sell units of each, Kravis at $ per unit
and Geffen at $ per unit. Both products require labor at $ per hour and machine time at
$ per hour In particular, production of one unit of Kravis requires one labor hour and two
machine hours, while a unit of Geffen requires two labor hours and one machine hour. Overhead
for the year setup of production batches and quality control is estimated at $ Assume
that both labor and machine costs are direct costs not included in overhead and thus are
allocated in all cases directly to Kravis and Geffen.
Required:
a Assume the overhead is allocated based on labor dollars. What is the overhead allocation
rate? The perunit cost and gross margin for each of the products? Any recommendation to
ASC based on your findings?
b Assume the overhead is allocated based on machine hours. What is the overhead allocation
rate? Theper unit cost and gross margin for each of the products? Any recommendation to
ASC based on your findings?
c An expensive consultant, MacKABC, was hired and after a long investigation suggested
ASC uses an ABC costing system. Further analysis revealed that all overhead should be
classified as a batch level cost, and that Kravis is planned to be produced in batches
while Geffen is planned to be produced in batches. Given ABC is implemented, what is
the perunit cost and gross margin for each of the products? Any recommendation to ASC
based on your findings?
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