Buffalo Best Company markets three products for sale. Product A, Product B, and Product C. Its production plant, which is located in the city of Buffalo, occupies 20,000 square feet of space. The use of this space is carefully planned as follows:

a. Product assembly: 5000 square feet

b. Machine setup: 2500 square feet

c. Machining operation: 10,000 square feet

d. Inspection, packaging, and shipping: 2500 square feet This plant has an expenditure of

a. $200,000 for supervision

b. $250,000 for procurement

c. $250,000 for depreciation

d. $750,000 for utilities

e. $25,000 for phones and travel expenses

f. $175,000 for manufacturing supports Each of the three products that this company makes requires different labor hours and materials costs, as shown in Table 6.20.

The labor charges of the company are as follows:

The company will sell the products at the prices shown in Table 6.21.

All products made by the Buffalo Best Company are assumed to have successful sales rates.

a. Apply activity-based costing to determine the unit cost and the individual gross margin for each of Product A, B, and C. Show the detailed computations.

b. Which product has the highest gross margin percentage?

Transcribed Image Text:

# Type of Labor Hours $/hour 1 Machine setup $40.00 234 Machine operation $50.00 Assembly $35.00 Inspection/packing/shipping $30.00