Abc 5-1

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Complete Name: ATC 5-1 (Pg. 246) Student Name: Dover, Jason

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1. (Using ABC to improve product pricing) Answer the four questions posed in the case. Include in your answer the basic differences between volume based (traditional) overhead application procedures and the ABC method.

Student Answer: ATC 5-1 (Pg. 246)

There are three products altogether. They are; GS-157, HS-241, and OS-367. The text book gave us the formulas to get the answers for A and B.

1.

A. In order to determine the gross profit margin for the three products based on the ABC data you used this formula. (Selling price – ABC cost per unit) x units produced.

Gross …show more content…
In order to determine the gross profit margin for the three products based on traditional data you used this formula. (Selling price – traditional cost per unit) x units produced.

Gross Profit Margins based on traditional data are:

GS-157 is $716,400

HS-241 is $475,200

OS-367 is …show more content…
Describe the production characteristics (for example, high-volume, specialty, etc.) of the three products manufactured by Drilling Innovations, Inc. in our case study.

Student Answer: When I looked at that data provided for Drilling Innovations, Inc I noticed that when the company used the ABC system for OS-367 that a larger amount of overheads were allocated to OS-367. OS-367 uses some of the available resources in greater amounts then the other two products. The OS-367 product only generates under 10% of gross profit margin, where the other two products are generating over 30% each. I also noticed that the volumes were lower for OS-367 and it would lead me to believe that there are smaller amounts of this product and as a result that will cause an increase in cost per unit due to the fact that the batch costs are spread over fewer amounts of units. If OS-367 is discontinued and the company increases production in GS-157 and HS-241 I believe that they can be more profitable as long as the market can handle these two products in larger amounts at the present selling price per unit. If so the production of GS-157 should be increased first because it has a higher profitability. HS-241 can be increased in volume as well as long as spare capacity is available after increasing the volume of GS-157. (Putman, 2010, p

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