5th Edition

ISBN: 9780134128528

Author: Karen W. Braun, Wendy M. Tietz

Publisher: PEARSON

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Textbook Question

Chapter 4, Problem 4.26AE

Continuation of E4-25A: Determine product profitability (Learning Objectives 2 & 3)

Refer to your answers in E4-25A. In addition to the manufacturing overhead costs, the following data are budgeted for the company’s Standard and Deluxe models for next year:

	Standard	Deluxe
Sales price per wheel…………………..	$460.00	$630.00
Direct materials per wheel	$ 33.50	$48.00
Direct labor per wheel	$ 45.70	$ 52.00

Requirements

1. Compute the gross profit per wheel if managers rely on the ABC unit cost data computed in E4-25A.
2. Compute the gross profit per wheel if the managers rely on the plantwide allocation cost data.
3. Which product line is more profitable for the company?
4. Why might the controller have expected ABC to pass the cost-benefit test? Were there any warning signs that the company’s old direct- labor-based allocation system was broken?

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Chapter 4, Problem 4.25AE

Chapter 4, Problem 4.27AE

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Chapter 4 Solutions

Managerial Accounting (5th Edition)

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Solution Summary: The author calculates gross profit per wheel if ABC costing system is used. They also identify which product line is more profitable for the company.

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