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].
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![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
120,000
90,000
40,000
Total Costs
Allocated:
Traditional
Costing
$1,600,000
1,100,000
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].](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc0c69442-5408-4687-8b1d-fa9b633ef545%2F86c4ae44-e7a5-4345-882a-30685bb893f6%2Fy0imi8u_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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
120,000
90,000
40,000
Total Costs
Allocated:
Traditional
Costing
$1,600,000
1,100,000
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].
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