(L.OBJ. 2) Using activity-based costing to make decisions [15-20 min] Refer to Exercise...

(L.OBJ. 2) Using activity-based costing to make decisions [15-20 min]

Refer to Exercise 17-16. For 2011, Erickson’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2010. In addition to the unit indirect manufacturing costs, the following data are budgeted for the company’s standard and deluxe models for 2011:

Because of limited machine-hour capacity, Erickson can produce either 2,000 standard rims or 2,000 deluxe rims.

Requirements

1. If Erickson’s managers rely on the ABC unit cost data computed in 17-16, which model will they produce? Carry each cost to the nearest cent. (All nonmanufacturing costs are the same for both models.)

2. If the managers rely on the single-allocation-cost data, which model will they produce?

3. Which course of action will yield more income for Erickson?