Chapter 19, Problem 21E

Refer to Exercise E19-20. For 2019, Eason’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity-based costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company’s standard and deluxe models for 2019:

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

Requirements

1. 1. If Eason’s managers rely on the ABC unit cost data computed in Exercise E19-20, which model will they produce? Carry each cost to the nearest cent. (Ignore selling and administrative expenses for this calculation.)
2. 2. If the managers rely on the single plantwide overhead allocation rate cost data, which model will they produce?
3. 3. Which course of action will yield more income for Eason?