Case 1 - regardless of the costing method used. 5) The...

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Sheet1 Page 1 POR= Cost/Driver 1) $464,000.00 / $232,000.00 = 2 LP CF DM 20 10 DL 8 5 Mfg OH 16 10 Cost per unit= 44 25 2) ABC (Total) CF 40000 units LP 4000 units DM $400,000.00 DM $80,000.00 DL $200,000.00 DL $32,000.00 Mfg OH $318,880.00 Mfg OH $145,120.00 Product Cost $918,880.00 Product Cost $257,120.00 ABC (Unit) CF 1 unit LP 1 unit DM $10.00 DM $20.00 DL $5.00 DL $8.00 Mfg OH $7.97 Mfg OH $36.28 Product Cost $22.97 Product Cost $64.28 3) Normal Costing LP CF Sales $70.00 $40.00 Cost -$44.00 -$25.00 Gross Profit $26.00 $15.00 ABC LP CF Sales $70.00 $40.00 Cost -$64.28 -$22.97 Gross Profit $5.72 $17.03 4) Switching the emphasis to the LP line would be a bad idea. It would cause a loss in profit because the CF line has a higher profit margin
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Unformatted text preview: regardless of the costing method used. 5) The differences in the costs for ABC and Normal costing occur for a couple reasons. One reason is that the products are diverse products. They consume resources differently and therefore will have different overhead costs. ABC is also generally more accurate than Normal costing. This is because ABC allocates overhead by activity, with multiple cost drivers rather than just using one cost driver as in Normal costing. By using more cost drivers, ABC is able to estimate with greater precision....
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