Bridgeton Industries: Automotive Component and Fabrication Plant 3. Calculate the expected gross margins as a percentage of selling price on each product based on the 1998 and 1990 model year budgets assuming selling price and material and labor cost do not change from standard.
*See Exhibit 1 for calculations
To calculate the expected gross margins as a percentage of selling price, first we will need to calculate the total overhead (burden) for years 1988 and 1990. For year 1988, the total overhead was $109,890; dividing by the total direct labor of $25,294 gives an overhead rate of 434%. For year 1990, the total overhead was $79,393; dividing by the total direct labor of $14,102 gives an overhead rate of 563%. Next, we will need to calculate the overhead for each product using the overhead rate from each model year. Adding the material costs and labor costs to the total overhead gave us total costs for each product in each year. The selling price less the total costs gives us the profit for each product. To find gross margin as a percent of selling price we divide Profit by selling price. 4. Are the product costs reported by the cost system appropriate for use in the strategic analysis? The product costs used for the strategic analysis were appropriate. The company’s cost system produces manufacturing cost reports using full factory costs. The product costs used in the study were taken from these manufacturing costs reports, with details provided by the facility’s financial personnel. OR: The product costs were appropriate because the costs used for the study were total full factory costs based on examination of real manufacturing cost reports from the cost system. However, the comparative competitive costs cannot be fully verified since it was mainly subjective based on tours and interviews. With the information collected, they came up with the best assumption for the correct competitive costs. 5. Assume that the selling prices,...
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