Based on our calculations in Appendix 1. at the first stage support costs were allocated to two existing departments, i.e. Machining and Assembly, based on direct labor hours. Therefore total amount of costs assigned to Machining department is $472.000,00 and to Assembly department is $248.000,00. At the second stage total costs from both departments were distributed to products (Regular and Deluxe). Referring to our calculations in Appendix 1. you may find that total amount of costs assigned to Regular model is $765.857,14 and $771.142,86 to Deluxe model. After final computations you can see that the cost of one unit of Regular model is $2,55 and cost of one unit of Deluxe model is $3,87. b) Determine the product costs and profits per …show more content…
What insight is provided by the new profitability analysis? What should Alice, Inc. do to enhance its profitability? What options may be available? Analyze the profitability of the two products As you can see in Appendix 1 our analysis revealed that according to new cost accounting system the profitability of Regular model is about 90% whereas profits from selling Deluxe model is about 10%. In the meantime production costs of Regular model is about 45% and Deluxe model is 55%. Thus we may conclude that for Alice, Inc. it is not profitable to produce Deluxe model comparing to Regular model, as costs for production of Deluxe model are higher but the profit is lower. What insight is provided by the new profitability analysis? What should Alice, Inc. do to enhance its profitability? In order to increase profitability we would advise Alice, Inc. to focus more on production and realization of Regular model faucets, i.e. spend more direct and indirect expenses on Regular model. What options may be available? Alice, Inc. may devote greater part of manufacturing support costs as well as direct costs on production of Regular model and decrease production of Deluxe