Problem:
Tiger Pride produces two product lines: T-Shirts and Sweatshirts. Product profitability is analyzed as follows:
T-SHIRTS SWEATSHIRTS
Production & Sales Volume - Units 60,000 35,000
Selling Price $16.00 $29.00
Direct Materials $2.00 $5.00
Direct Labor $4.50 $7.20
Manufacturing Ohd $2.00 $3.00
Gross Profit $7.50 $13.80
Selling and Admin $4.00 $7.00
Operating Profit $3.50 $6.80
Tiger Pride's managers have decided to revise their current assignment of overhead costs to reflect the following ABC cost information:
Activity Activity Cost Cost Driver
Supervision $100,920 Direct Labor Hours
Inspection $124,000 Inspections
ACTIVTIES DEMANDED:
T-SHIRTS SWEATSHIRTS
.75 DLH/Unit 1.2 DLH/Unit
45,000 DLHs 42,000 DLHs
60,000 Inspections 17,500 Inspections
Q1. Under the revised ABC system, total overhead costs allocated to Sweatshirts will be:
a $48,720
b $76,720
c $224,920
d None of the answers are correct.
Q2. Under the revised ABC system, overhead cost per unit for the Sweatshirts will be:
a $1.39 per unit
b $1.60 per unit
c $2.19 per unit
d $2.47 per unit
Q3. Using an ABC system, next year's estimates show manufacturing overhead costs will total $228,300 for 52,000 T-Shirts. If all other T-shirt costs and sales prices remain the same, the profitability that can be expected is:
a $5.41 per T-shirt.
b $4.39 per T-shirt.
c $1.11 per T-shirt.
d ($0.81) per T-Shirt