Refer to the dialogue presented at the beginning of the chapter and the follow-up dialogue before Figure 3.7.

Required:

a. In the opening dialogue, why was the owner concerned about the product costs for each of the company€™s boats?

b. In the follow-up dialogue before Figure 3.7, what did the company€™s accountant discover about the profitability of each boat using activity-based costing? 

Transcribed Image Text:

Plantwide Costing (direct labor hours as allocation base) Deluxe Sailboat Basic Sailboat $ 1,000 600 $ 1,300 750 Direct materials Direct labor Overhead" Total product cost per unit (a) Sales price (b) 1,280 $ 2,880 $ 3,200 $ 320 1,600 $ 3,650 $ 4,500 $ 850 Profit = (b) – (a) Activity-Based Costing (several different allocation bases) Basic Sailboat Deluxe Sailboat $ 1,000 $ 1,300 Direct materials Direct labor Overhead" 600 750 1,004 $ 2,604 $ 3,200 $ 596 2,980 $ 5,030 $ 4,500 $ (530) Total product cost per unit (c) Sales price (d) Profit (loss) = (d) – (c)