Question

Required
a. Determine the gross profit margin for each product produced based on the ABC data
[(selling price 2 ABC cost per foot) 3 feet produced].
b. Determine the gross profit margin for each product produced based on the traditional
costing data [(selling price 2 traditional cost per foot) 3 feet produced].
c. Provide an explanation as to why the cost of M-63 may have increased under the ABC
system while the cost of R-150

Selling Allocated: Cost per Foot: Total Cost Costs per
Price per Feet Traditional Traditional Allocated: Foot:
Product Foot Produced Costing Costing ABC ABC
R-150 $14.65 250,000 $2,100,000 $ 8.40 $2,000,000 $ 8.00
R-127 15.60 140,000 1,280,000 9.14 1,235,000 8.82
M-63 18.50 20,000 214,500 10.73 359,500 17.98
Totals $3,594,500 $3,594,500

decreased.
d. Assume that Pressure Products expects to produce a gross profit margin on each product
of at least 40% of the selling price. Suggest what action management might take with
respect to the discoveries resulting from the ABC versus traditional costing analysis.