Question
The CFO, Kate Stewart, realized that not all products consumed factory overhead in the similar way. She was able to list the following usage
The CFO, Kate Stewart, realized that not all products consumed factory overhead in the similar way. She was able to list the following usage of factory overhead during the year, after some further studies: Product A Product B Product C Total Overhead Number of setups 3 6 4 $ 8,800 Weight of direct materials (pounds) 411 261 361 176,000 Waste and hazardous disposals 36 56 41 400,000 Quality inspections 41 46 Utilities (machine hours) 3,200 8,100 46 1,600 86,000 77,000 Total $ 747,800 Required: 1. Using the volume-based method, calculate the manufacturing cost per unit for each of the products. 2. Under both the current and the ABC system, what would be the least profitable and the most profitable products? 3. Based on 150% of the new costs under the ABC system, what would be the new target price for each product? Then, compare this price with the actual selling price.
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