Based on the calculations in Tab 3 using ABC, comment on the operating profits made for each product. Explain in your report why operating profits have changed under ABC analysis. Also indicate which of the systems - that is the traditional systems (using lumpsum or volume-based cost allocation in Tab 1 and Tab 2) or the ABC systems, (Tab 3) provide the best answers for decision making to improve cost management in order to improve operating profit.

Question 1 A new intern thinks that the profit for Deluxe Boxes are higher than those calculated using the lump sum method (as in Tab1). The intern suggests calculating the profits using an allocation method for fixed costs based on sales volume( the number of boxes sold) to split the Fixed Costs between the Standard and Deluxe Boxes. Required: (Complete the grey spaces): 1) First calculate the percenatge portion each product has of the total sales voume 1) How much fixed costs are allocated to each product based on the sales volume method suggested by the intern? 2) Also calculate the new operating profit percentage (based on sales) for each product. Standard Boxes Deluxe Boxes Total Volumes (per Month) 9 1.5 10.5 Volumes per year (Millions) 108 18 126 Calculate the portion of Sales Volume (percentage sales volume) 8.33 8.33 8.33 Calculate how much fixed costs are allocated to each product. 120 36 156 Standard Boxes Total Boxes($ New Profit Calculation ($Millions) Deluxe Boxes ($Millions) Millions) Revenue 2,030.40 $ 513.00 2,543.40 Subtract Variable Costs S 1,080.00 360.00 ur ur 1,440.00 Equals: Contribution Margin 950.40 ur 153.00 ur 1,103.40 Subtract Fixed Costs 120.00 $ 36.00 S 156.00 Equals: Operating Profit 830.40 S 117.00 Operating Profit % (based on Revenue) 40.90% 22.81%