Gorden Company produces a variety of electronic products. One of its plants prod

Question

Gorden Company produces a variety of electronic products. One of its plants produces two laser printers, Speedy and Deluxe. At the beginning of 2014, the following data were prepared for this plant: The unit overhead cost is calculated using the predetermined overhead application rate based on direct labor-hours. Upon examining the data, the marketing manager was particularly impressed with the per-unit profitability of the Deluxe printer and suggested that more emphasis be placed on producing and selling this product. The plant supervisor objected to this strategy, arguing that the Deluxe model required a very delicate manufacturing process. The supervisor believed that the cost of the Deluxe printer was likely to be much higher that reported. The controller suggests an ABC system and provides the following budget data pertaining to the period: Using the projected data based on the firm's current costing system, calculate gross profit per unit and gross profit percentage (with respect to selling price) for each product. Using the suggested multiple cost drivers overhead rates, calculate the overhead cost per unit for each product and determine gross profit per unit and gross profit percentage (with respect to selling price) for each product. Based on your results, evaluate the suggestion of the marketing manager to emphasize the Deluxe model.

Explanation / Answer

workings:

1 Deluxe Speedy Selling price per unit 475 300 cost of goods sold: prime cost 180 110 overhead cost 20 153.6 200 263.6 Gross profit 275 36.4 percentage of gross profit 57.89473684 12.13333333 (gross profit/selling price*100)

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