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    Traditional Cost Systems for Bimini Products Inc

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    Managers often make decisions about keeping or dropping a product after evaluating the probability of each product in the product line. Bimini Products Inc., recently completed an activity-based costing study. Management wished to compare the results with the cost data produced by their traditional cost system. Product data are as follows:

    Product Selling Product Cost Traditional Cost ABC
    A $100 $80 $65
    B 150 120 140
    C 130 80 90

    Product A is produced is high volume using a stable process that does not require excessive support activities. Product B demands high levels of support activities and is produced in low volume. Product C is produced in moderate volume.

    A. For each product compute:

    1. Profit margin, traditional
    2. Profit margin, ABC
    3. Percentage change in profit margin as follows: (profit margin ABC - profit margin / profit margin traditional).

    B. What kinds of product line decisions might your calculations support?

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    Solution Summary

    Traditional cost systems are examined