# 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
Variable costs:
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
Profit \$12,800

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Required:

(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.

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