Solved: Lennox Industries manufactures two products A and B A review
Lennox Industries manufactures two products A and B A review
Lennox Industries manufactures two products: A and B. A review of the company’s accounting records revealed the following per-unit costs and production volumes:
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Manufacturing overhead is currently computed by spreading overhead of $1,860,000 over 20,000 direct labor hours. Management is considering a shift to activity-based costing in an effort to improve the firm’s accounting procedures, and the following data are available:
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Lennox determines selling prices by adding 40% to a product’s total cost.
Required:
a. Compute the per-unit cost and selling price of product B by using Lennox’s current costing procedures.
b. Compute the per-unit overhead cost of product B if the company switches to activity-based costing.
c. Compute B’s total per-unit cost and selling price under activity-based costing
d. Lennox has recently encountered significant international competition for product B, with considerable business being lost to very aggressive suppliers. Will activity-based costing allow the company to be more competitive with product B from a price perspective? Briefly explain.
e. Will the cost and selling price of product A likely increase or decrease if Lennox changes to activity-based costing? Why?
Lennox Industries manufactures two products A and B A review
