Which product line is more profitable for zippyzippy

Reference no: EM131975539

Problem

Several years after reengineering its production process, ZippyZippy Corporation hired a new? controller, Jane SmithJane Smith. She developed an ABC system very similar to the one used by ZippyZippy's chief rival, SouthstreamSouthstream.

Part of the reason SmithSmith developed the ABC system was because ZippyZippy's profits had been declining even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC? system, ZippyZippy had used a plantwide overhead rate based on direct labor hours that was developed years ago.

Manufacturing Overhead Costs per Unit

                                              Standard   Deluxe
ABC costs. . . . . . . . . . . . . . . . $199.50   $372.50
Plantwide overhead rate. . . . . . $237.60   $334.40

The following data are budgeted for the? company's Standard and Deluxe models for next year:

Standard Deluxe
Sales price per wheel. . . . . . . $490.00 $640.00
Direct materials per wheel. . . . $33.00 $46.25
Direct labor per wheel. . . . . . . $45.20 $51.00

1. Compute the gross profit per wheel if managers rely on the ABC unit cost data.

2. Compute the gross profit per wheel if the managers rely on the plantwide allocation cost data.

3. Which product line is more profitable for ZippyZippy?

4. Why might the controller have expected ABC to pass the? cost-benefit test? Were there any warning signs that Zippy'sZippy's old direct-labor-based allocation system was? broken?

Reference no: EM131975539

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