Problem:
Pressure Products, Inc., produces specialized industrial hoses for applications such as high-pressure hydraulics and the transference of highly corrosive materials. The company has recently implemented an ABC system for three of its products, and is interested in evaluating its effectiveness before converting to an ABC system for all products. To perform this evaluation the company compiled data for the three products using both the traditional system and the new ABC system. The traditional system used a single driver (direct material costs). The ABC system uses a variety of cost drivers related to the activities used to produce the hoses. The three products involved in the trial run of the ABC system were R-150, S-127, and M-63. The following data relate to these products, and unit data have been rounded to the nearest penny.
|
Product
|
Selling Price
(per foot)
|
Feet
Produced
|
Total Costs
Allocated:
Traditional
Costing
|
Cost per
Foot:
Traditional
Costing
|
Total Cost
Allocated:
ABC
|
Costs per
Foot:
ABC
|
|
R-150
|
14.65
|
250,000
|
2,100,000
|
8.40
|
2,000,000
|
8.00
|
|
R-127
|
15.60
|
140,000
|
1,280,000
|
9.14
|
1,235,000
|
8.82
|
|
M-63
|
18.50
|
20,000
|
214,500
|
10.73
|
359,500
|
17.98
|
|
Totals
|
|
|
3,594,500
|
|
3,594,500
|
|