If you drop product A in the long term, fixed costs will: Oremain the same Odecr
ID: 2547605 • Letter: I
Question
If you drop product A in the long term, fixed costs will: Oremain the same Odecrease by $5,400 profit will: Odecrease by $1,800 Oincrease by $3,600 e) Allocate the fixed costs between products A and B, using the number of units as the cost driver. allocation rate-$ allocated costs for A-$ allocated costs for B-$ per unit These allocated amounts are very different from what you got in part (a). In general, should we use the a D use the allocated costs from (a) direct labor is always a better cost driver than the number of units use the allocated costs from (e) the number of units is always a better cost driver than direct labor O it depends-- direct labor can be a better cost driver in some situations, and the number of units (or some other ac f) Suppose that a firm uses a labor-intensive production process. The most reasonable cost driver for manu f number of units machine hours o direct labor (measured in hours or dollars) Suppose that a firm uses a machine-intensive production process. The most reasonable cost driver for manuExplanation / Answer
Product A Product B Total sales volume (units) 270 150 420
Revenue $4,500 $27,000 $31,500
Variable costs: direct materials $900 $1,800 $2,700
direct labor $1,800 $4,500 $6,300
Contribution margin $1,800 $20,700 $22,500 Fixed costs $18,900 Profit $3,600
Allocation rate = Total fixed cost / total number of units = 18900 / 420 Units = 45 per Unit
Total fixed cost (Product - A and Product - B) = 18900 ....... given in the question
Total units ( Number of units of product - A and product - B) = 270 units + 150 Units = 420 Units
Allocated cost for A = allocation rate ( as above) * Units of product - A = 45 * 270 = 12150
Allocated cost for B = allocation rate (as above ) * Units of product - B = 45 * 150 = 6750
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