Question:
Using activity-based costing to make decisions
Refer to Exercise 18-17. For 2013, Elton's managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2012. In addition to the unit indirect manufacturing costs, the following data are budgeted for the company's standard and deluxe models for 2013:
|
Standard
|
Deluxe
|
|
Sales price
|
800.00
|
940.00
|
|
Direct materials
|
31.00
|
50.00
|
|
Direct labor
|
45.00
|
56.00
|
Because of limited machine-hour capacity, Elton can produce either2,000 standard rims or2,000 deluxe rims.
Requirements
1. If Elton's managers rely on the ABC unit cost data computed in E18-17, which model will they produce? Carry each cost to the nearest cent. (Ignore operating expenses for this calculation.)
2. If the managers rely on the single-allocation-base cost data, which model will they produce?
3. Which course of action will yield more income for Elton?