(WIP) ACC 350 Exam 1 Study Material

Standard: ($42,500 * .50) / 15,000 units = $1.42/unit
Unique: ($42,500 * .50) / 5,000 units = $4.25/unit
3. Calculate the cost of the two products using ABC.
Standard Unique
OH
Mtl handling ($12/move * 1,000; $12/move * 1,500) $12,000 $18,000
Set-ups ($20/hr * 2,000; $20/hr * 3,000) 40,000 60,000
Engin. Support ($50/hr * 1,000; $50/hr * 2,000) 50,000 100,000
Power ($20/MH * 2,000MH; $20/MH * 2,000MH) 40,000 40,000
Space 21,250 21,250
Total OH Costs $163,250 239,250
Number of units 15,000 5,000
OH Cost/Unit $10.88 $ 47.85
Prime Costs (DM & DL) 85.00 125.00
Total Cost/Unit $95.88 $172.85
4. How did the cost of the two products change and why?
Using ABC, the cost of the Standard product declined and the cost of the Unique product
increased. The traditional method of product costing did not take into account all of the resources
consumed by the Unique product, and overestimated the resources consumed by the Standard
product.
5. Discuss how the company would go about improving profitability.
• Improve productivity by reducing the cost of the activities.
• Reduce the activity requirements (activity quantities) associated with the Unique product.
• While we don’t have pricing information, we should consider:
o Increasing the price of the Unique product.
o Emphasize (increase sales) of the Standard product and de-emphasize (reduce
sales) of the Unique product.
o Drop the Unique product if the avoidable costs associated with the Unique
product are greater than the Unique product’s contribution margin