2) GR is planning to reduce the price of Econo-dog collars from $30 to $29 in response tocompetitive pressure from the market. The price reduction would enable it to sell the samequantity of 16,000 as before. GR hopes to counter the price reduction by improving theutilization of direct material and identifying cheaper sources for direct material. These actionsare expected to reduce the direct material cost of Econo-dog collars by $0.60 per collar. What is the estimated expected reduction in total profit from the Econo-dog product line if a) GR uses the product cost information provided by the old DL $ based-system(b) GR uses the product cost information provided by the ABC system A ) The old DL $ based-system:No indirect cost savings will be anticipated given that DL $ is the sole driver of overhead costs. Therefore, estimated expected reduction in profit/unit is = $1 reduction in price minus $0.60 in DM cost = $0.40 per unit. The expected reduction in profit for the entire Econo-Dog product line is 16,000 x 0.4 = $6,400. B ) ABC system:Indirect cost savings of $0.60 per unit =(0.6 x 1) will be anticipated in addition to the DM savings of $0.60 since DM $ is the cost driver for the material-related OH activity pool and the OH cost per $ of DM is $1.00. As a result the expected reduction in profit is = = $1 reduction in price minus ($0.60 in DM cost + $0.60 in DM OH cost) = - $0.20 per unit. other words, an increasein profit of $0.20 will be anticipated. The expected increase in profit for the entire Econo-Dog product line is 16,000 x 0.2 = $3,200.
Problem 5 Grinders R Us manufactures and sells two different types of grinders. It sells a regular bench grinder for a unit price of $135 and a professional bench grinder for $200. The perunit variable costs of regular and professional bench grinders are $100 and $ 140, respectively. 10