Sunder Corp. makes two main products in its factory in Birmingham, Alabama. Because of intense competition for standardized products, particularly from overseas firms, Sunder is considering switching its emphasis to custom-made products.

The following data are available:

Required:
a. Calculate the variable cost and the allocated fixed cost per unit of the standard and the custom product. Comment on the validity of the implied allocation mechanism.
b. Calculate the profit margin for the two products, assuming that Sunder allocates costs to products using machine hours as the allocation basis.
c. Sunder believes that, with suitable marketing, it can change its product mix to be 50,000 units each of the Standard and Custom products. Using fixed costs allocated on the number of units to project the change in capacity costs, estimate Sunder€™s profit with the proposed product mix.
d. Repeat part (c) except allocate capacity costs using machinehours.

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Item Standard Products Custom Products $175 per unit 60% $65 4 25,000 Average price per unitS130 per unit Contribution margin ratio 50% Profit margin per un $25 Machine hours per unit Number of units 75,000