Gordon Company produces a variety of electronic products. One of its plants produces two laser printers, Express and Enterprise. At the beginning of 2013, the following data were prepared for this plant: Enterprise Express Quantity 50,000 400,000 Selling price $475.00 $300.00 Unit prime cost 180.00 110.00 Unit overhead cost 20.00 153.60 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 Enterprise printer and suggested that more emphasis be placed on producing and selling this product. The plant supervisor objected to this strategy, arguing that the Enterprise model required a very delicate manufacturing process. The supervisor believed that the cost of the Enterprise printer was likely to be much higher than reported. The controller suggests an activity-based costing system and provides the following budget; data pertaining to the period: Activity Consumption Overhead Activity Cost Driver Pool Rate* Enterprise Express Setups Number of setups $2,800 200 100 Machine costs Machinehours 100 100,000 400,000 Engineering Engineeringhours 40 45,000 120,000 Packing Packing orders 20 50,000 200,000 * Cost per unit of cost driver Required:
1. Using the projected data based on the firm's current costing system, calculate gross profit per unit and gross profit percentage for each product. Round calculations to 2 decimal places.
2. 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 for each product.
3. Based on your results, evaluate the suggestion of the marketing manager to emphasize the Enterprise model.
4. How does ABC contribute to Gordon’s competitive advantage?