Gross Profit Margin for Products using ABC/Traditional Costing
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See attached file for the table.
Determine the gross profit margin for each product produced based on the data
[(selling price-ABC cost per foot) x feet produced]
Determine the gross profit margin for each product produced based on the traditional costing data
[(selling price-traditional cost per foot) x feet produced]
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.
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Solution Summary
The solution calculates the gross profit margin for each product using ABC and traditional costing.
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