Question

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows:

T-SHIRTS

SWEATSHIRTS

Production and sales volume

204,000 units

34,000 units

Selling price

$18.00

$29.00

Direct material

$1.60

$ 5.00

Direct labor

$4.30

$ 7.20

Manufacturing overhead

$4.60

$ 3.00

Gross profit

$ 7.50

$13.80

Selling and administrative

$3.50

$ 7.00

Operating profit

$4.00

$ 6.80

Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information:

Activity	Activity cost	Activity-cost driver
Supervision	$130,560	Direct labor hours (DLH)
Inspection	$69,300	Inspections

Activities demanded

T-SHIRTS	SWEATSHIRTS
0.25 DLH/unit	1.50 DLH/unit
51,000 DLHs	51,000 DLHs
30,000 inspections	19,500 inspections

Using an ABC system, next year's estimates show manufacturing overhead costs will total $227,300 for 46,000 T-shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is ________. (Round the final answer to the nearest whole cent.)

Answer 1

ABC costing uses different cost drivers for allocating activity costs to products.

46,000 tshirts

$227,300 Manufacturing OH

	T shirts
Sales	$828,000[$18*46,000]
Less: Direct material	$73,600[$1.60*46,000]
Less: Direct labor	$197,800[$4.30*46,000]
Less: Manufacturing OH as per ABC	$227,300
Less: Selling and administrative expenses	$161,000[3.50*46,000]
Net Income	$168,300
Number of Tshirts	46,000
Profit per unit	$3.66[$168,300/46,000]

the profitability that can be expected is $3.66. (Round the final answer to the nearest whole cent.)

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