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Question $2$: Almost Svmmetric Corporation

The Almost Symmetric Corporation $($ASC$)$ has two almost identical products: Kravis and

Geffen. The plans for $2022$ are to produce and sell $1,000$ units of each, Kravis at $$75$ per unit

and Geffen at $$60$ per unit. Both products require labor $($at $$10$ per hour$)$ and machine time $($at

$$20$ per hour$).$ In particular, production of one unit of Kravis requires one labor hour and two

machine hours, while a unit of Geffen requires two labor hours and one machine hour. Overhead

for the year $($set$-$up of production batches and quality control$)$ is estimated at $$33,000.$ Assume

that both labor and machine costs are direct costs $($not included in overhead$)$ and thus are

allocated in all cases directly to Kravis and Geffen.

Required:

a$.$ Assume the overhead is allocated based on labor dollars. What is the overhead allocation

rate? The per$-$unit cost and gross margin for each of the products? Any recommendation to

ASC based on your findings?

b$.$ Assume the overhead is allocated based on machine hours. What is the overhead allocation

rate? The$-$per unit cost and gross margin for each of the products? Any recommendation to

ASC based on your findings?

c$.$ An expensive consultant, MacK$-$ABC, was hired and after a long investigation suggested

ASC uses an ABC costing system. Further analysis revealed that all overhead should be

classified as a batch level cost, and that Kravis is planned to be produced in $100$ batches

while Geffen is planned to be produced in $10$ batches. Given ABC is implemented, what is

the per$-$unit cost and gross margin for each of the products? Any recommendation to ASC

based on your findings?

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