Using the traditional overhead allocation technique, Lily Ice Cream Company's Vanilla flavor has a gross profit of negative $155,000 (see Exhibit 17.6). Using the ABC system, Vanilla has a gross profit of positive $139,500 (see Exhibit 17.7). Why is there so much difference in the gross profits forVanilla?

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EXHIBIT 17.6 Flavor Gross Profit Computations Using Traditional Overhead Allocation for Lily Ice Cream Company Marshmallow Gingerbread Strawberry Double Dutch Peanut Cheesecake Banana Chocolate Caramel Butter Delight Vanilla Supreme Surprise Brownie Swirl Total 500,000 50,000 100,000 1,500,000 Number of gallons 250,000 200,000 400,000 S 800,000 S 750,000 S625,000 $125,000 Sales $600,000 $350,000 $3,250,000 Production cost: S 200,000 $ 50,000 S200,000 $ 300,000 Direct materials $250,000 $150,000 $1,150,000 50,000 116,000 1,740,000 100,000 Direct labor 125,000 100,000 15,000 200,000 590,000 Overhead ($1.16 per galon) 580,000 464,000 290,000 232,000 58,000 S 905,000 $316,000 $3,480,000 $ 34,000 $ (230,000) Total flavor production cost Flavor gross profit S 964,000 S164,000) S590,000 S 35,000 $582,000 $ 18,000 $123,000 $ 2,000 S1155,000) EXHIBIT 17.7 Flavor Gross Profit Computations Using ABC Overhead Assignment for Lily Ice Cream Company Marshmallow Gingerbread Strawberry Double Dutch Peanut Butter Swirl Caramel Cheesecake Banana Chocolate Brownie Delight Vanilla Supreme Surprise Total 250,000 Number of gallons 500,000 400,000 1,500,000 200,000 50,000 100,000 $ 600,000 $625,000 $800,000 $350,000 Sales $750,000 $125,000 $3,250,000 Production cost: $ 250,000 $200,000 $ 50,000 15,000 $150,000 $1,150,000 Direct materials $200,000 S300,000 100,000 Direct labor 125,000 100,000 200,000 50,000 590,000 Overhead (using ABC): Gallons of ice cream 125,000 250,000 100,000 25,000 200,000 50,000 750,000 44,000 Number of batches 22,000 206,800 52,800 26,400 88,000 440,000 Number of ingredients 27,000 S753,400 13,500 54,000 67,500 S 724,300 27,000 81,000 $419,000 270,000 Total flavor production cost $610,500 $523,000 $169,800 $3,200,000 S 144,800) S 46,600 Flavor gross profit S 169,000) $ 50,000 $139,500 $102,000 S(124,300) Facility support costs 280,000 $ (230,000) Company gross profit