Question

Several years after reengineering its production process, Trudell Corporation hired a new controller, Alice Brown. She developed an ABC system very similar to the one used by Trudell's chief rival. Part of the reason Brown developed the ABC system was because Trudell's profits had been declining even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC system, Trudell had used a plantwide overhead rate based on direct labor hours that was developed years ago. (Click the icon to view the overhead costs and budgeted data.) Read the requirements Х Data Table Requirement 1. Compute the gross profit per wheel if managers rely on the Begin by computing the total manufacturing cost per wheel for each wheel mg Trudell Corporation Manufacturing Overhead Costs per Unit Requirements Total cost per unit using ABC data Standard Deluxe Standard Deluxe ABC costs $ 199.50 $ 372.50 V Plantwide overhead rate 237.60 $ 334.40 The following data are budgeted for the company's Standard and Deluxe models for next year: 1. Compute the gross profit per wheel if managers rely on the ABC unit cost data. 2. Compute the gross profit per wheel if the managers rely on the plantwide allocation cost data. 3. Which product line is more profitable for the company? 4. Why might the controller have expected ABC to pass the cost-benefit test? Were there any warning signs that the company's old direct-labor-based allocation system was broken? Standard Administrative costs Delivery costs Direct labor Direct materials Manufacturing overhead Selling expenses Deluxe $ 470.00 $ 620.00 Sales price per wheel. Direct materials per wheel Direct labor per wheel $ 34.50 $ 46.75 Print Done $ 45.30 $ 52.00 Print Done

Answer 1

Answer:

1	Trudell Corporation
	Total Cost per unit using ABC Data
			Standard	Deluxe
	Direct Material	$34.50	$46.75
	Direct Labour	$45.30	$52.00
	Manufacturing Overhead	$199.50	$372.50
	Total Maunfacturing Cost	$279.30	$471.25
	GROSS PROFIT
	Sales		$470.00	$620.00
	Less : Total Manufacturing Cost	$279.30	$471.25
		GROSS PROFIT	$190.70	$148.75
2	Trudell Corporation
	Total Cost per unit using Plant Wide Allocation Rate
			Standard	Deluxe
	Direct Material	$34.50	$46.75
	Direct Labour	$45.30	$52.00
	Manufacturing Overhead	$237.60	$334.40
	Total Maunfacturing Cost	$317.40	$433.15
	GROSS PROFIT
	Sales		$470.00	$620.00
	Less : Total Manufacturing Cost	$317.40	$433.15
		GROSS PROFIT	$152.60	$186.85
3	As per ABC Costing Standard Product is more profitable for company
	As per Plant Wide Overhead Rate Deluxe Product is more profitable for company
4	Controller expected ABC costing to pass cost benefit test as ABC Costing applies cost
	to product on the basis of work done on it by different departments and not taking
	single base and also with traditional costing profits were continously declining even
	after producing profitable goods so there was need of change.