Question 1. Good Dentist Ltd. produces three distinct products and sells them in bulk to smaller retailers. Its managers are concerned that the company's profit is not as high as its competitors. They believe they fall in profits could be caused due to the company's uncompetitive selling price(s), for one or more product, and losses on other products. Details of the company's costs and selling prices are as follows: Product Dental Tool Kit Dental Whitening Kit Electric Toothbrush Selling Price 14.00 40.00 50.00 Direct Costs Labour 4.00 9.00 15.00 Direct Material - nylon bristles 5.00 Direct Material - other 3.00 21.00 15.00 Total Direct Cost 7.00 30.00 35.00 5,000 2 hour per unit Units produced 4,000 7,000 Labour hours 1 hour per unit 2 hour per unit Currently the company uses the traditional method of allocating indirect overheads but is considering using the ABC method for increasing the accuracy. The company's indirect overheads are as follows: Depreciation 20,000 Purchasing Expenses Direct Material - nylon bristles delivery inspection 15,000
Question 1.
Good Dentist Ltd. produces three distinct products and sells them in bulk to smaller retailers. Its
managers are concerned that the company's profit is not as high as its competitors. They believe
they fall in profits could be caused due to the company's uncompetitive selling price(s), for one or
more product, and losses on other products. Details of the company's costs and selling prices are as
follows:
Product Dental Tool Kit Dental Whitening Kit Electric Toothbrush
£ £ £
Selling Price 14.00 40.00 50.00
Direct Costs
Labour 4.00 9.00 15.00
Direct Material - nylon bristles 5.00
Direct Material - other 3.00 21.00 15.00
Total Direct Cost 7.00 30.00 35.00
Units produced 4,000 5,000 7,000
Labour hours 1 hour per unit 2 hour per unit 2 hour per unit
Currently the company uses the traditional method of allocating indirect
considering using the ABC method for increasing the accuracy. The company's indirect overheads
are as follows:
£
Purchasing Expenses 15,000
Direct Material - nylon bristles delivery inspection
costs 1,000
Direct Material - other delivery inspection costs 4,000
Set-up costs 4,000
Canteen expenses 12,000
Activities associated with the overheads are: -
Dental Tool Kit Dental Whitening Kit Electric Toothbrush
Number of suppliers 5 6 4
Component deliveries per month 2 2 1
Production runs per month 10 12 18
No. of employees 10 15 15
Value of machinery 10000 5000 10000
Required
a) Calculate the profit per unit for the three products based on the company's current Labour hours
based overhead method.
(
b) Calculate the profit per unit for the three products using the principles of ABC. Explain your
reasons for choosing the bases of overhead allocation
Step by step
Solved in 3 steps
