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Wess Company has limited capacity and can produce either its standard product or its deluxe product. Additional information follows. Per Unit Standard DeluxeSelling price $ 92 $ 125Direct materials 46 51Direct labor 36 41
Problem 1. Using a single plantwide rate, the company computes overhead cost per unit of $17 for the standard model and $22 for the deluxe model. Which model should the company produce? Hint: Compute product cost per unit and compare that with selling price to get gross profit per unit.
Problem 2. Using activity-based costing, the company computes overhead cost per unit of $3 for the standard model and $44 for the deluxe model. Which model should the company produce? Hint: Compute product cost per unit and compare that with selling price per unit to get gross profit per unit.
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