Williams-McDowell Company manufactures a wide variety of products in its Dallas Division. The Dallas plant was created

Question:

Williams-McDowell Company manufactures a wide variety of products in its Dallas Division. The Dallas plant was created to be an efficient producer of standardized products made in long production runs, although both high- and low-volume products are now produced there. Annual volumes range from several thousand units for some products to fewer than 10 for others. In recent years, much of the Dallas plant's usual business in high-volume products has been lost to competitors who price aggressively and who do not produce a full product line. The general manager of Dallas Division states, "I know we're as skilled as anybody else in the industry, and our quality is second to none. In addition, we're the only major competitor that offers a full line of products, so our customers have the convenience of getting all their requirements from us and not having to deal with several vendors. What I don't understand is how a couple of our competitors can price as low as they do on some of our bread-and-butter products."
To better understand the costs of its products, the Dallas Division is considering changing its product costing system. The existing system accumulates all overhead in a single cost pool and allocates it based on direct labor hours. Because of the very large number of products, the general manager has decided to focus initially on just two products: Product 321, which is representative of most of Dallas' high-volume products; and Product 333, a representative low-volume product. The following information pertains to the most recent year's operations of the Dallas plant; for brevity, details for products other than Product 321 and Product 333 are not shown, but totals for the entire division are given in the last column.

Required:
(1) Using the existing cost system, calculate the total and unit product costs of the two products. Use the same format as Exhibit 14-3, but omit the column for the total costs of the Dallas division.
(2) If the Dallas Division adopts an ABC system, with the number of setups as the activity driver for all batch-level overhead, design hours as the activity driver for all product-level overhead, and direct labor hours as the driver for all unit- and plant-level overhead, what will be reported as the total and per-unit costs of the two products? Use the same format as in Exhibit 14-4, but omit the column for the total costs of the Dallas Division. Calculate unit costs to the nearest cent.
(3) Using the usual selling prices and the product costs reported by the existing system, calculate the gross margin in dollars and as a percent of sales, to the nearest whole percent, on one unit of each product.
(4) Using the usual selling prices and the product costs reported by the ABC system, calculate the gross margin in dollars and as a percent of sales, to the nearest whole percent, on one unit of each product.
(5) Compare the information provided by the existing system to the ABC information. What new insight is revealed by the ABC system?
(6) Make pricing and product-line recommendations for Dallas Division's management based on the results of the ABC study. Include other options Dallas should consider, and suggest how each possible action could be implemented.