Question

Traditional Systems – detailed gross profit statement

	Product JCX-1	Product JCX-2	Total
Sales	10,000,000	8,400,000	18,400,000
Cost of sales:
Direct material cost	3,120,000	1,580,000	4,700,000
Direct labour cost	2,200,00	3,300,00	550,000
Manufacturing overhead cost	3,340,000	1,910,000	5,250,000
Total Manufacturing cost	6,680,000	3,820,000	10,500,000
Gross profit	3,320,000	4,580,000	7,900,000
Number of units	20,000	10,000	30,000
Per unit product cost	$500	840	1,340

Activity Based Costing (ABC) – detailed gross profit statement

	Product JCX-1	Product JCX-2	Total
Sales	$                                            10,000,000.00	$        8,400,000.00	$          18,400,000.00
Direct costs
Direct material cost	$                                                3,120,000.00	$        1,580,000.00	$            4,700,000.00
Direct labour cost	$                                                   220,000.00	$           330,000.00	$               550,000.00
Indirect costs
Customer orders	$                                                          588.55	$                  340.74	$               323,700.00
Automated machinery	$                                                   423,066.67	$           126,920.00	$            1,941,001.95
Finishing	$                                                       5,500.06	$               1,833.35	$            3,371,001.45
Product design		$               2,200.00	$            1,100,000.45
Total manufacturing cost	$                                                3,769,155.28	$        2,041,294.09	$          11,985,703.85
Gross profit	$                                                6,230,844.72	$        6,358,705.91	$            6,414,296.15
Number of units	20000	10000	30000
Per unit product costs	500	840	1340

Present a statement that compares product profitability under traditional volume (direct labour) based costing system & activity based costing (ABC) system.  

Answer 1