ATC 5-1 Business Applications Case Using ABC to improve product costing Drilling Innovations Inc. produces specialized cutting heads used by companies that drill for oil and natural gas. The company recently implemented an ABC system for three of its products and is interested in evaluating its effectiveness before converting to an ABC system for all of its products. To perform this evaluation the company has compiled data for the three products using both the traditional system and the new ABC system. The traditional system uses a single driver (machine hours). The ABC system uses a variety of cost drivers related to the activities used Page 248 to produce the cutting heads. The three products involved in the trial run of the ABC system were GS-157, HS-241, and OS- 367. The following data relate to these products. Product GS-157 HS-241 OS-367 Totals Selling Price per Unit $19.30 17.50 15.10 Units Produced Total Costs Allocated: Traditional Costing 120,000 $1,600,000 90,000 1,100,000 40,000 400,000 $3,100,000 Cost per Unit: Traditional Costing $13.3333 12.2222 10.0000 Total Cost Allocated: ABC Cost per Unit ABC $1,500,000 $12.5000 1,050,000 11.6667 550,000 13.7500 $3,100,000 a. Determine the gross profit margin for each product produced based on the ABC data [(Selling price - ABC cost per unit) Units produced].
ATC 5-1 Business Applications Case Using ABC to improve product costing Drilling Innovations Inc. produces specialized cutting heads used by companies that drill for oil and natural gas. The company recently implemented an ABC system for three of its products and is interested in evaluating its effectiveness before converting to an ABC system for all of its products. To perform this evaluation the company has compiled data for the three products using both the traditional system and the new ABC system. The traditional system uses a single driver (machine hours). The ABC system uses a variety of cost drivers related to the activities used Page 248 to produce the cutting heads. The three products involved in the trial run of the ABC system were GS-157, HS-241, and OS- 367. The following data relate to these products. Product GS-157 HS-241 OS-367 Totals Selling Price per Unit $19.30 17.50 15.10 Units Produced Total Costs Allocated: Traditional Costing 120,000 $1,600,000 90,000 1,100,000 40,000 400,000 $3,100,000 Cost per Unit: Traditional Costing $13.3333 12.2222 10.0000 Total Cost Allocated: ABC Cost per Unit ABC $1,500,000 $12.5000 1,050,000 11.6667 550,000 13.7500 $3,100,000 a. Determine the gross profit margin for each product produced based on the ABC data [(Selling price - ABC cost per unit) Units produced].
Financial & Managerial Accounting
13th Edition
ISBN:9781285866307
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter27: Lean Principles, Lean Accounting, And Activity Analysis
Section: Chapter Questions
Problem 27.4BPR: Pareto chart and cost of quality report for a manufacturing company The president of Mission Inc....
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