a. Comparing the Gross Margin percentages of the jobs under the Activity Based Costing system, which job
Question:
- a. Comparing the Gross Margin percentages of the jobs under the Activity Based Costing system, which job is more attractive for Lock-Tite to sell? Could the company be overcharging their customers for this job? Explain using complete sentences and 30 to 50 words.
- b. Do you think the company’s policy of using a factor times direct material costs to set selling prices is a good policy? What would change if they used “total costs” to establish selling prices? What other information might be helpful to make this decision. Make sure you explain your answer using full sentences and 30 to 50 words.
- c. Should Lock-Tite Company switch to ABC method? Explain how it may or may not help manage their company. Use complete sentences and 30 to 50 words.
Answer A &B&C USING CHARTS
Lock-Tite Company
Jobs Report – Traditional OH allocation (Direct Labor Dollars)
Year Ending December 31
JV28 | BY92 | ZF14 | ||
Sales Revenue | 132,800 | 99,600 | 92,960 | Calculated in 7e) |
Job Costs: | ||||
Direct Material | 26,560 | 19,920 | 13,280 | From 7a) |
Direct Labor | 7,842 | 5,882 | 5,882 | From 7b) |
Overhead | 4,313 | 3,235 | 3,235 | From 7c) |
Total Job Costs | 38,715 | 29,037 | 22,397 | |
Gross Margin | 70.85 | 70.85 | 75.91 | |
Gross Margin % | 53% | 71% | 82% |
Lock-Tite Company | ||||
Job Report – ABC | ||||
JV28 | BY92 | ZF14 | ||
Sales Revenue | 132,800 | 99,600 | 92,960 | |
Job Costs: | ||||
Direct Material | 26,560 | 19,920 | 13,280 | |
Direct Labor | 7,842 | 5,882 | 5,882 | |
Overhead – from 8 | 36,330 | 29,420 | 37,761 | |
Total Job Costs | 70,732 | 55,222 | 56,923 | |
Gross Margin | 0.47 | 0.45 | 0.39 | |
Gross Margin % | 47% | 45% | 39% |
Financial and Managerial Accounting
ISBN: 978-0538480895
11th Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren