(WIP) ACC 350 Exam 1 Study Material
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$1,715,071 $1,854,929<br />
# of Units 50,000 10,000<br />
$34.30 $185.49<br />
DM 38.00 54.00<br />
DL (from part 2) 30.00 60.00<br />
Total Product Cost $102.30 $299.49<br />
Selling Price $145.00 $275.00<br />
Gross Margin $42.70 ($24.49)<br />
e. What can Brrrrr Company do to improve its profitability?<br />
Currently, the Self-propelled model is losing money on each unit sold (even before SG&A<br />
costs!). The company probably doesn’t want to discontinue this model. First, they may want to<br />
explore the idea of increasing prices. Second, they should evaluate whether they can use the<br />
ABC information to manage costs. The schedule below breaks out activity costs per unit. They<br />
should use this information and focus on the high dollar costs. For example, it costs $52 per unit<br />
to inspect the Self-propelled snow blowers. This seems excessive given the $275 selling price<br />
(20% of selling price for inspection?). Setups are also extremely expensive. Can they run more<br />
items in a batch? While inventory holding costs would increase, reducing the number of batches<br />
would likely reduce the costs per unit of inspections, setups, scheduling and material handling.<br />
They should do a cost/benefit analysis to determine whether the savings offset the increasing<br />
inventory holding costs.<br />
Activity Self-Propelled Per Unit<br />
Engineering Design $286,000 $28.60<br />
Inspections 585,000 58.50<br />
Production Set-ups 305,000 30.50<br />
Scheduling 110,000 11.00<br />
<strong>Material</strong> Handling 147,500 14.75<br />
Machine Maintenance 200,000 20.00<br />
Facility Costs 221,429 22.14<br />
$1,854,929 $185.49