Chapter 18, Problem 2CMA

The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry White, the firm’s new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Following are activity and cost information relating to two of Chocolate Baker’s major products:

Using activity-based costing, which of the following statements is correct?

1. a. The muffins are $2,000 more profitable.
2. b. The cheesecakes are $75 more profitable.
3. c. The muffins are $1,925 more profitable.
4. d. The muffins have a higher profitability as a percentage of sales and, therefore, are more advantageous.