question 1 cost allocation product profit margin killing products in the long term 461484
Use the following contribution margin statement:
Product A Product B Total
sales volume (units) 100 180 280
Revenue $16,000 $96,000 $112,000
direct materials $3,200 $6,400 $9,600
direct labor $6,400 $16,000 $22,400
Contribution margin $6,400 $73,600 $80,000
Fixed costs $67,200
(a) allocate the shared fixed costs ($67,200) among product A and product B, using direct labor dollars as the allocation basis.
allocation rate=$_________________ per DL$
FC allocated to A=$_______________
FC allocated to B=$_________________
(b) using the allocated costs from (a), compute the profit margin for product A and product B.
If you get a negative number, enter it with a minus sign, i.e., enter negative $1000 as -1000, not as ($1000)
profit margin for A=$________________
profit margin for B=$________________
c) based on the profit margins from (b), should you kill product A or product B in the long term? Explain your decision.