Using ABC for strategic decisions

III. Module 3 Review Questions
Using ABC for strategic decisions

Consider the following data for two products of Vigano Manufacturing.
1) Using direct labor hours as the basis for assigning overhead costs, determine thetotal production cost per unit for each product line.
2) If the market price for Product A is $20 and the market price for Product B is $60,determine the profit or loss per unit for each product. Comment on the results.
3) Consider the following additional information about these two product lines. IfABC is used for assigning overhead costs to products, what is the cost per unitfor Product A and for Product B?

4) Determine the profit or loss per unit for each product. Should this information influence company strategy? Explain.

IV.Module 3 Review Questions

Using ABC in a service company

Singh and Smythe is an architectural firm that provides services for residential construction projects. The following data pertain to a recent reporting period.

1. Using ABC, compute the firm’s activity overhead rates. Form activity cost poolswhere appropriate.
2. Assign costs to a 9,200 square foot job that requires 450 contact hours, 340design hours, and 200 days to complete.

V.Module 3 Review Questions

Evaluating product line costs and prices using ABC

Healthy Day Company produces two beverages, PowerPunch and SlimLife. Data aboutthese products follow.

Additional data from its two production departments follow:

1. Determine the cost of each product line using ABC.
2. What is the cost per bottle for PowerPunch? What is the cost per bottling ofSlimLife? (Hint: Your answer should draw on the total cost for each product linecomputed in requirement 1.)
3. If PowerPunch sells for $3.75 per bottle, how much profit does the company earnper bottle of PowerPunch that it sells?
4. What is the minimum price that the company should set per bottle of SlimLife? Explain.