(WIP) ACC 350 Exam 1 Study Material

Set-ups—Number of set-ups (batches)
$220,000 / 200 set-ups = $1,100/Set-up
Machine Maintenance—Machine Hours
Deluxe: 5,000 units * 3 MH/u = 15,000 MHs
Regular: 45,000 units * .5 MH/u = 22,500 MHs
37,500 MHs
$350,000 / 37,500 MHs = $9.33/MH
4. Determine the gross margin (in total and per unit) of the regular and deluxe models using the ABC
information.
Deluxe Regular Total
Sales (5,000 * $140/u; 45,000 * $80/u) $700,000 $3,600,000
DM (5,000 * $45/u; 45,000 * $30/u) -225,000 -1,350,000
DL (5,000 * $20/u; 45,000 * $20/u) -100,000 -900,000
OH
Purchasing (600 POs * $180/PO; 400 POs * $180/PO) -108,000 -72,000
QC (100 hrs. * $2,000/hr; 25 hrs. * $2,000/hr) -200,000 -50,000
Set-up (100 Batches * $1,100/batch) -110,000 -110,000
Maint. (15,000 MHs * $9.33/MH; 22,500 * 9.33/MH -140,000 -210,000
Gross Margin $(183,000) $908,000 $725,000
Gross Margin/unit $(36.60) $20.18
5. Is the deluxe model as profitable as the company thinks it is? Why or why not?
No, the deluxe model consumes more resources than was shown under the more traditional method
of product costing.
6. What can Manhattan Company do to improve its profitability? Should the company drop the
Deluxe model? Why or why not?
• Consider increasing the price of the Deluxe model.
• Emphasize (increase sales) of the Regular model and de-emphasize (reduce sales) of the
Deluxe model.
• Improve productivity by reducing the cost of the activities.
• Reduce the activity requirements (activity quantities) associated with the Deluxe model.
• It should only drop the Deluxe model if the avoidable costs associated with the Deluxe
model are greater than the Deluxe model’s contribution margin.